"(The BOK) believes there is a possibility that the volatility in the local financial and foreign exchange markets may rise depending on how Japan's export restrictions are actually implemented," the central bank said in a statement after an emergency meeting to review possible fallout from Japan's expanded export restrictions against South Korea.

"(BOK) Gov. Lee called for efforts to help stabilize the market while closely monitoring the impact of Japan's latest step on the economy as it may have a significant impact on our economy," it added.

The local currency plunged to more than a two-year low on Friday, closing at 1,198.0 won against the U.S. dollar. The closing rate marks a 9.50-won plunge from the previous session and is the lowest since Jan. 9, 2017.

Such a sharp drop, however, may have been a one-time event, partly sparked by an apparently escalating trade dispute between the United States and China, the BOK said.

On Thursday (Washington time), U.S. President Donald Trump tweeted that his country will begin imposing 10-percent import tariffs on US$300 billion worth of Chinese imports in addition to 25-percent import tariffs imposed on $250 billion worth of Chinese goods since the beginning of June.

Japan's removal of South Korea from a list countries given preferential trade status is expected to deliver a hard blow to Asia's fourth-largest economy as it deals with a continuing skid in

exports.

South Korea's exports have dropped for eight consecutive months since December, plunging 11.0 percent on-year last month.

Tokyo has been enforcing tougher export restrictions since early July on three key materials used in the production of semiconductors and display panels, both key export items for South Korea.

Hours after Japan expanded its export restrictions, the Seoul government said it will remove its neighbor from its own whitelist of trusted trading partners, upping the ante in the trade war. (Yonhap)