August 6, 2007 (LPAC)--The South Korean government has implemented partial currency controls to prevent domestic foreign currency borrowing aimed at speculating against the won through the yen carry trade. With the Japanese government clearly moving to restrict the carry trade, the South Koreans are effectively preventing speculators in Korea from feeding the monster which Japan is finally moving to kill. The Korean won has been driven up against the yen over the past two years, by carry trade speculators, borrowing yen at 0.5% and buying South Korean bonds at 4.25%.

South Korea's Finance and Economy Minister Kwon Okyu, speaking in Australia on Aug. 3, said the yen carry trade was "a potential threat to the international financial markets."

Under the new law, as of Friday Aug. 10, those who have purchased foreign currencies in Korea will not be able to roll over their loans, except for loans financing overseas investments.