South Korea works to remain stable after artillery exchange with North Korea

This picture taken on November 23, 2010 by a South Korean tourist shows huge plumes of smoke rising from Yeonpyeong island in the disputed waters of the Yellow Sea on November 23, 2010. North Korea fired dozens of artillery shells onto a South Korean island, killing two people, setting homes ablaze and triggering an exchange of fire as the South's military went on top alert.

TEXT OF INTERVIEW

STEVE CHIOTAKIS: South Korea's central bank said today it will work with the government in making sure markets remain stable there. That's after an exchange of artillery fire between North and South Korea that left at least two South Korean marines dead.

The BBC's Roland Buerk is with us from Tokyo to talk about how this is not just a regional issue. Hi Roland.

ROLAND BUERK: Hello there.

CHIOTAKIS: What is the immediate global financial fallout from these hostilities?

BUERK:: Well the markets that were open fell. Hong Kong Hang Seng was down by 2.7 percent. Singapore's index lost 1.6 percent. It was actually quite well-timed, perhaps for the markets in South Korea and Japan -- South Korea's market was closed and in Japan, it's a public holiday. But I think we can expect to see reaction in Japan when the markets open here. Because Japan is very well aware, after a rocket was fired over the country's main island by North Korea last year, that it's cities too are within range of the long-range munitions of North Korea.

CHIOTAKIS: Why are investors in initial reactors here?

BUERK:: I think it's because they've got the most to lose. They realize that even though they can take the run of the mill provocations and North Korea in their stride, a big event like this could be a game changer. And when you look at the costs of potential outcomes of a really serious incident on the Korean peninsula, they're huge. If you had a war which everyone does think is probably very unlikely, you could see South Korean cities shelled, you could even see Japanese cities shelled. Well let's say that the Koreas reunite, that would have huge economic implications too. The costs of that have been estimated at a trillion dollars. So it's little wonder when something like this happens, investors run for cover.

CHIOTAKIS: So even between war or peace, we're talking about a lot of money.

BUERK:: Yes, vast sums of money in some of the biggest economies in this part of Asia. Japan of course, the second or third depending on whether China actually has overtaken at this precise moment, in the world, and South Korea, a rising economy -- both potentially under threat from North Korea, whatever happens.

CHIOTAKIS: The BBC's Roland Buerk in Tokyo. Roland, thank you.

BUERK:: Thank you.

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