The South Korean won touched a seven-year high against the Japanese yen on Thursday, prodding the local currency authorities to raise their guard to minimize its possible impact on exports.

The won-yen arbitrated exchange rate stood at 903.04 per 100 yen as of 3 p.m., the highest since Feb. 28, 2008, when the comparable figure was 889.23. Earlier in the day, the rate briefly dipped below the psychologically important 900-won level.

The local currency closed at 1,082.20 per dollar, down 2.6 won from the previous session.

The U.S dollar serves as the benchmark currency for the exchange rate between the two, which tend to move together in their rates to the greenback.

The won's rally versus the Japanese yen is a major concern for the country's policymakers as the two countries directly compete in overseas markets over products ranging from electronic goods to autos.

"The won could remain firmer (against the dollar) than the Japanese yen ...  and its trend may continue until there are clear signs that the Fed's rate hike would be in the offing," said Chung Kyong-pal, an analyst at KEB Futures Co.

The won's sharp gain versus the Japanese currency came as the yen's slide against the greenback has been sharper than the won's descent on the back of Japanese Prime Minister Shinzo Abe's campaign, dubbed Abenomics, to end years of deflation and listless growth through massive fiscal and monetary policy easing measures.

The recent rally in the Korean won versus the Japanese yen has been further accelerating as Asia's fourth-largest economy logged a trade surplus for the 38 straight month in March and foreign investors snatched up a huge chunk of local stocks.

In the first three months of the year, the country's trade surplus stood at $21.6 billion. South Korea's trade account has been in the black since February 2012.

Foreign investors also have scooped up a net 3.4 trillion won worth of South Korean stocks this month alone, channeling more dollars into the economy, which in turn boosts demand for the local currency.

The won's rally versus the Japanese yen is sounding an alarm bell among policymakers as the weakening of the Japanese currency comes at a time when South Korean exporters' outbound shipments are losing steam.

South Korea's outbound shipment growth has decelerated for the fourth straight year as the global economic slump cut demand and weak oil prices lowered the export prices of key products.

According to the data compiled by the Korea Investment Trade Association, the country's exports increased 4.4 percent last year in terms of volume, well higher than the global average expansion of 3.1 percent.

But the 2014 figure compares with a 4.8 percent gain in 2013 and a 5.6 percent rise in 2012. The reading also marks a sharp slowdown from a 13.9 percent expansion in 2011 and a jaw-dropping 22 percent growth in 2010.

The country has also seen its export prices decline for the third consecutive year, posting a 2.2 percent fall, a 1.9 percent drop and 3.7 percent slide, respectively, in 2014, 2013 and 2012, the data showed.

Separate data compiled by the Bank of Korea also showed that the contribution of exports to South Korea's economic growth fell to a five-year low last year as outbound shipments were hurt by a slower-than-expected global recovery.

Of South Korea's 3.3 percent economic growth last year, 1.5 percentage points resulted from overseas shipments of goods and services.

This translates into a contribution rate of 45.5 percent, the lowest since 2009, when numbers reached minus 28.6 percent as the global economy was stung by a financial crisis. A negative reading means exports actually brought down overall growth.

"The won-yen rate could fall to below the 850-won level, and could dip further than that," said Oh Jung-keun, a researcher at the Korea Economic Research Institute. "South Korea's exports could further lose steam due to the yen's weakness." (Yonhap)