Journalist
Kim Yeon-jae김연재
duswogmlwo77@ajupress.com
ReporterBank of Korea & Market, Macroeconomics
Kim Yeon-jae is a journalist at AJU Press (AJP's English platform),
covering macroeconomics, international finance, and geopolitics.
He closely tracks central bank monetary policies, global energy supply chains,
and the Korean defense industry. "Peering into the risks behind the euphoria."
covering macroeconomics, international finance, and geopolitics.
He closely tracks central bank monetary policies, global energy supply chains,
and the Korean defense industry. "Peering into the risks behind the euphoria."
Latest by Kim Yeon-jae
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Korean won falls below 1,500 vs USD first time since late May SEOUL, July 8 (AJP) - The South Korean won strengthened below 1,500 to the dollar on Wednesday for the first time in some 27 trading days, supported by dollar-selling linked to SK hynix's planned American Depositary Receipts (ADRs) listing. The won stood at 1,498 per dollar as of 3:30 p.m., moving into the 1,400 range for the first time since May 29. The move marked a sharp reversal in just three days of trading since South Korea launched 24-hour onshore dollar-won spot trading on Monday. Compared with the mid-1,500 level seen on the first day of the new trading system, the exchange rate was down by nearly 40 won as of Wednesday afternoon. Foreign exchange dealers said dollar-selling linked to SK hynix's ADR offering emerged in the dollar-won forwards market, adding to expectations of fresh dollar supply. SK hynix recently launched a U.S. share sale to raise about 43 trillion won or $28.7 billion, drawing strong investor interest as global demand for artificial intelligence (AI)--related chips continued to support appetite for the chipmaker's shares. The company is expected to bring more dollars into the country in the coming week and convert part of the proceeds into won, creating expectations of additional dollar supply in the domestic foreign exchange market. The move comes after the won had remained under pressure near crisis-era levels despite strong exports and gains in South Korean equities. Market participants have pointed to foreign equity outflows, South Korea's interest-rate gap with the U.S. and rising domestic demand for dollar assets as factors weighing on the currency. A senior finance ministry official said supply-demand conditions in the dollar-won market could shift in the second half, citing won demand from SK hynix's planned U.S. share sale. Bond yields moved in opposite directions, indicating that the currency rally did not translate into a broad-based bid for government debt. The three-year government bond yield edged down 0.5 basis point to 3.775 percent, while the 10-year yield rose 3.2 basis points to 4.245 percent. The short end was little changed as the sharp recovery in the won eased some near-term concerns over imported inflation and currency-driven policy pressure. Longer maturities came under pressure amid curve-steepening flows and broader market volatility. 2026-07-08 17:31:48 -
Counterfeit banknotes hit near-record low in 1st half SEOUL, July 08 (AJP) - The number of counterfeit Korean won banknotes found in circulation fell by more than 30 percent in the first half from a year earlier, the Bank of Korea said Wednesday. A total of 41 counterfeit banknotes were detected during the first six months of this year, down 21 from 62 a year earlier, marking a 33.9 percent decline. The tally includes counterfeit notes discovered by the central bank while handling currency in circulation, as well as those reported to the BOK by financial institutions after being found in cash deposits or at teller windows. The combined face value of the counterfeit notes came to 473,000 won, down 570,000 won from a year earlier. The decline was largely due to a drop in counterfeit 50,000-won notes, which fell to five from 15. By denomination, 5,000-won notes accounted for the largest share with 22 bills. They were followed by 11 10,000-won notes, five 50,000-won notes and three 1,000-won notes. Of the counterfeit 5,000-won notes, 17 were old-series bills with the serial number pattern "77246," which were produced by a large-scale counterfeiter arrested in June 2013. The figure was down from 20 a year earlier. The BOK said 12 newly detected counterfeit serial numbers were found in the first half, with higher-denomination bills accounting for most of them, suggesting that new counterfeiting attempts were concentrated in larger bills. The ratio of counterfeit notes to banknotes in circulation remained very low. The BOK said Korea had 0.6 counterfeit notes detected per 100 million banknotes in circulation. That compares with 4,229 in the U.K., 1,461 in Europe, 1,411 in Canada and 8.6 in Japan. The BOK said the country's counterfeit-note ratio has continued a gradual decline after falling sharply through 2019. Separately, the central bank gave a BOK governor's award to Icheon Police Station in Gyeonggi Province for its role in preventing counterfeit currency from spreading. The police station was recognized for arresting two suspects accused of counterfeiting 20 50,000-won notes and three others accused of passing 12 counterfeit notes at 11 locations, including convenience stores, after launching an investigation from a 112 emergency call last November. The BOK said most of the seized counterfeit notes had mismatched serial numbers on the upper left and lower right of the front side. The lower-right serial number was identical on the seized notes, reading "FC2902733H." The central bank advised people to report suspicious notes to police immediately. 2026-07-08 16:29:46 -
C/A data explains the mystery behind the stubbornly weak won SEOUL, July 08 (AJP) - The foreign-exchange formula used to be simple for South Korea. The current-account surplus set the tone for the Korean won against the U.S. dollar in the export-reliant economy. Strong exports bolstered the won, while a weaker won made Korean goods more competitive overseas. For foreign-exchange watchers, trade data mattered most. Not anymore. The Korean won has hovered around 1,500 per U.S. dollar since late last year. The dollar ended June at 1,549.4 won, compared with 1,439 won at the end of 2025 and 1,472.5 won at the end of 2024. In the first five months, it averaged at 1,476.99. The weak currency sits uneasily with the broader economy. Exports reached a record $496.71 billion in the first half and the economy grew 3.8 percent from a year earlier in the first quarter — among the fastest in the OECD —while the benchmark KOSPI ended June at 8,476, roughly double its level six months earlier. By the old formula, the won should have been one of Asia's strongest currencies. Instead, it has remained near its weakest level since the 1997-98 Asian financial crisis. The mystery is explained by South Korea's latest balance-of-payments data. From January to May, Korea posted a current-account surplus of $141.28 billion, while foreign investors sold a net $74.67 billion worth of Korean equities and Korean residents bought $41.03 billion of overseas stocks. Together, the two equity-related flows reached $115.70 billion, or more than 80 percent of the cumulative current account surplus. Much of the foreign selling centered on Samsung Electronics and SK hynix, the KOSPI's two largest companies, whose shares have surged five- to six-fold over the past year. Foreign investors still own roughly half of both chipmakers, allowing them to realize substantial gains from the AI-driven semiconductor rally. Semiconductors accounted for roughly half of Korea’s customs-cleared exports in May, underscoring how heavily the record current-account surplus depended on the AI-driven chip cycle. Yoo Sung-wook, head of the Bank of Korea's Financial Statistics Department, said foreign investors continued to show a tendency to sell Korean stocks in June and that it would take more time to determine when rebalancing-driven selling would come to an end. The government's assessment echoed that view. Following an interagency market-monitoring meeting Wednesday, officials said financial and foreign-exchange markets continued to face elevated volatility despite record exports and current-account surpluses because of persistent foreign fund outflows and expectations of higher global interest rates. The figures point to a structural shift in the way the won is being priced. While exports continue to generate record foreign-exchange earnings, capital flows are increasingly determining whether those dollars remain in Korea or leave the country, limiting the traditional support that trade surpluses once provided to the currency. The government said it would strengthen its 24-hour monitoring system after Korea began round-the-clock foreign exchange trading earlier this week. It also plans to announce a roadmap this month to promote the international use of the won in current and capital account transactions. 2026-07-08 14:31:29 -
Korea's record C/A surplus overshadowed by $31 bn foreign stock sell SEOUL, July 08 (AJP) - South Korea posted another record current account surplus in May, but the windfall was overshadowed by the largest foreign exodus from the country's stock market on record, exposing a widening disconnect between the economy's external strength and global investors' appetite for Korean assets — a divergence that has helped keep the won stubbornly weak. The Bank of Korea said Wednesday the current account surplus widened to a record $38.61 billion in May, driven by booming semiconductor exports and investment income. At the same time, foreign investors sold a record net $31.05 billion worth of Korean equities, resulting in a $24.65 billion decline in foreign portfolio investment in domestic markets. The May current account surplus surpassed the previous record set in March and rising sharply from $28.29 billion in April and $9.91 billion a year earlier. For January-May, the black stretched to $141.28 billion, more than four times $33.9 billion a year-ago period. The goods account, the main driver of the overall surplus, also logged a record surplus of $37.86 billion. Goods exports rose 62.9 percent from a year earlier to $94.34 billion, while imports increased 22.2 percent to $56.48 billion. Exports under the balance-of-payments framework reached a fresh high, slightly topping the previous peak in March. Imports were not at a record high and edged down from $56.70 billion in April, widening the goods surplus sharply. The services account remained in deficit, but the shortfall narrowed to $1.09 billion from $2.42 billion a month earlier. The travel account swung to a small surplus of $50 million, while deficits continued in other business services and manufacturing services. The primary income account recorded a surplus of $2.17 billion, led by dividend income, while the secondary income account posted a deficit of $330 million. For the first five months of the year, the current account surplus reached $141.28 billion. The goods surplus over the same period stood at $145.96 billion. Customs-cleared trade data included in the Bank of Korea (BOK) release showed how heavily the export rebound depended on semiconductors. Exports on a customs basis rose 53.4 percent from a year earlier to $87.82 billion in May. Semiconductor exports jumped 167.7 percent to $37.29 billion, accounting for more than 40 percent of total customs-cleared exports. The increase in semiconductor exports alone accounted for roughly three quarters of the overall export gain from a year earlier. Exports of electrical and electronic products more than doubled to $47.61 billion, while information and communications devices rose 103.9 percent to $6.59 billion. Outside the technology sector, petroleum product exports rose 49.1 percent to $5.44 billion, while chemical and steel products posted moderate gains. But the recovery remained uneven, with passenger cars, auto parts and machinery all declining from a year earlier. Passenger car exports fell 7.5 percent to $5.49 billion, while auto parts declined 7.8 percent to $1.48 billion. Machinery and precision equipment exports also dropped 4.9 percent to $5.59 billion. By destination, exports to China rose 80.8 percent to $18.89 billion, while shipments to Southeast Asia increased 74.4 percent to $29.02 billion. Exports to the United States climbed 59.4 percent to $16 billion. Exports to the European Union rose only 3.2 percent, while shipments to the Middle East fell 7.5 percent. Imports on a customs basis rose 20.7 percent to $60.79 billion in May. Raw material imports increased 22.1 percent, while capital goods imports rose 28 percent. Consumer goods imports gained only 1.8 percent. Crude oil imports rose 24.8 percent in value terms, even as import volume fell 22.9 percent, as the average import price of crude oil surged 61.9 percent from a year earlier. Semiconductor-related imports also remained strong. Semiconductor imports rose 61.1 percent, while imports of chipmaking equipment increased 54.9 percent. The financial account recorded a net asset increase of $31.08 billion. Portfolio investment rose by $30.89 billion as South Korean residents purchased a net $6.24 billion of overseas securities, mainly equities, while foreign investors sharply reduced their holdings of Korean assets. For the first five months of the year, foreign investors dumped a total $74.67 billion of Korean equities - more than seven times $10.16 billion net sales in the same period last year. Korean investors bought $41.03 billion of overseas stocks during the period, resulting a cascade of capital outflow that has helped keep the won above 1,500 per U.S. dollar on average this year for the first time since the Asian financial crisis of the late 1990s. Direct investment remained positive, with Korean companies investing $4.56 billion overseas and foreign direct investment into South Korea increasing by $2.69 billion. Reserve assets fell by $1.73 billion during the month. Reserve assets decreased by $1.73 billion in May. 2026-07-08 08:23:35 -
Won extends gains on second day of 24-hr FX trading SEOUL, July 07 (AJP) - The Korean won strengthened further Tuesday, the second day of round-the-clock trading in the domestic foreign exchange market, even as foreign investors sold local stocks. As of 12:30 p.m. (0300 GMT), the won was hovering around 1,521 per dollar, up more than nine won from the previous daytime closing level. South Korea shifted its dollar-won spot market to a 24-hour trading system on Monday, allowing continuous trading from 6 a.m. Monday to 6 a.m. Saturday. The won's move was notable because it came despite foreign selling in the KOSPI market, which would normally add some pressure on the currency. The intraday gain suggested that dollar-supply expectations and position adjustments may have outweighed equity outflow pressure, at least in early trading. Market participants were watching expectations for corporate dollar inflows, possible position adjustments after the start of 24-hour trading and caution over official smoothing operations. The decline in the exchange rate also revived market talk of possible smoothing operations by foreign exchange authorities. Authorities do not confirm intervention, and there was no official indication that they had entered the market. The move was still moderate compared with the won's recent range, but the currency's advance toward the low-1,520 level suggested that the opening phase of the new trading system has not triggered additional FX stress so far. Bond-market reaction remained limited. The three-year Korean government bond yield fell 1.3 basis points to 3.763 percent in morning trading. The 10-year yield slipped 0.3 basis point to 4.200 percent, staying effectively flat. The muted bond-market response suggests that the absence of sharp FX volatility after the 24-hour market opening was mildly supportive for bonds, while concerns over long-end supply, inflation and the Bank of Korea's policy-rate path continued to cap the move. The 10-year yield's reluctance to move far below the 4.2 percent level indicates that investors are still pricing in heavy long-term bond supply and uncertainty over future rate decisions. 2026-07-07 13:04:57 -
Korean households' stock and fund buying nears $40 bn in Q1, nearly matching foreign sales SEOUL, July 07 (AJP) - South Korean households’ purchases of equity securities and investment fund shares nearly doubled to 61.4 trillion won ($40 billion) from 34 trillion won in the first quarter, the latest data underscoring the stock craze that gripped the country as investors watched the benchmark KOSPI surge in the first half. Foreign investors sold nearly the same amount, offloading a net 62.1 trillion won worth of Korean equities and investment funds, more than seven times the 8.5 trillion won sold in the previous quarter, Bank of Korea data showed Tuesday. The BOK said the domestic sector posted net lending of 84.3 trillion won ($55.1 billion) in the January-March period, up from 51.9 trillion won in the previous quarter. Households and nonprofit institutions serving households remained the largest net-lending sector, with net lending rising to 79.2 trillion won from 67 trillion won. Their financial asset transactions climbed to 96.3 trillion won from 84.3 trillion won, driven by the surge in purchases of equity securities and investment fund shares. The central bank said much of the increase in household deposits came from investor cash parked at securities firms rather than ordinary bank deposits. Deposits at financial institutions rose to 29.4 trillion won from 12.8 trillion won even as bank deposits declined, suggesting households shifted money into brokerage accounts, stocks and funds. Households continued to sell bonds, with net disposals of 7.4 trillion won in the first quarter after selling a net 10.4 trillion won in the previous quarter. Equity securities and investment fund shares accounted for 28.8 percent of household financial assets at the end of March. The overseas sector moved in the opposite direction. Its net borrowing widened to 84.3 trillion won from 51.9 trillion won as nonresidents stepped up sales of Korean equities. Financial asset transactions by the overseas sector swung to a net disposal of 20.9 trillion won from a net acquisition of 46.4 trillion won. Nonresidents sold a net 62.1 trillion won of Korean stocks and investment funds, compared with net sales of 8.5 trillion won in the fourth quarter. Appetite for foreign equities remained strong. Koreans' overseas stock investment totaled 40.3 trillion won, down from 61.5 trillion won in the previous quarter but still large, while overseas direct investment increased to 28.9 trillion won from 18.1 trillion won. The pattern helps explain the unusual combination of a soaring KOSPI and a weak won. Household money moved toward stocks, funds and brokerage accounts, while foreign selling and residents' overseas investment sustained demand for dollars. Nonfinancial corporations also shifted into a larger net lending position. Their net lending rose to 20.8 trillion won from just 100 billion won in the fourth quarter as financial asset transactions increased to 137 trillion won from 58.4 trillion won. Corporate borrowing from financial institutions rose to 32.2 trillion won from 10.6 trillion won. Direct financing, however, swung to a net repayment of 7.9 trillion won from net borrowing of 21.4 trillion won, while corporate bond financing shifted to a net repayment of 11.8 trillion won from net issuance of 15.9 trillion won. The general government's net borrowing widened to 23.3 trillion won from 19 trillion won. Government bond issuance surged to 49.7 trillion won from 3 trillion won, helping explain recent upward pressure on long-term Korean bond yields amid concerns over heavy debt supply. At the end of the first quarter, the domestic nonfinancial sector held financial assets of 14.77 quadrillion won against financial liabilities of 8.335 quadrillion won, leaving net financial assets of 6.435 quadrillion won. The ratio of financial assets to financial liabilities for households and nonprofit institutions rose to 2.60 from 2.54 at the end of the previous quarter. Separately, the BOK said the household debt-to-GDP ratio fell to 85.3 percent in the first quarter as nominal GDP grew 4 percent while household debt increased 0.6 percent. The central bank cautioned, however, that the decline should be assessed together with the continued rise in household debt and the renewed pickup in borrowing seen in the second quarter. 2026-07-07 12:37:59 -
Seoul's 24-hour FX market tests local banks' staffing capacity SEOUL, July 06 (AJP) - South Korea began round-the-clock foreign exchange trading on Monday, but while the country's largest lenders are relying on overseas dealing desks to cover the new hours, smaller regional banks say they are scrambling to find enough people to stay awake. "We need more staff, but there are limits to how quickly we can hire people for this," one foreign-exchange official at a regional bank told AJP on condition of anonymity. "We will probably introduce rotating shifts internally." Another regional-bank official said recruitment was not a near-term solution. "For now, we are looking at two options: rotating shifts and new hiring," the official said. "Because recruitment takes a lot of time, we are thinking of responding first through rotating shifts." The new framework, launched Monday, allows dollar-won spot trading to run from 6 a.m. Monday to 6 a.m. Saturday during U.S. daylight-saving time. The opening and closing times will shift to 7 a.m. during U.S. winter time. The launch marks the final step in South Korea's transition to a near 24-hour onshore foreign-exchange market. Trading hours had already been extended in July last year from the previous 9 a.m.-3:30 p.m. schedule to 9 a.m.-2 a.m. the following day. The immediate challenge for banks is covering the four-hour gap between the previous 2 a.m. market close and the start of the regular Seoul business day. Korea's five major lenders—KB Kookmin, Shinhan, Hana, Woori and NH NongHyup—have spent the past year preparing by expanding staffing, reorganizing overseas operations and strengthening London dealing desks, according to multiple industry sources. Some are expected to use capital-markets teams in Singapore, London and New York, while others will rely primarily on London because Korea's early morning overlaps with London's trading day. Regional banks, however, face a different reality. Unlike the country's largest lenders, their foreign-exchange business is centered on customer transactions, trade finance and liquidity management for local exporters and importers. Most lack extensive overseas dealing operations in financial centers such as London and New York. "Even if we automate the process, it is ultimately people who have to look at it and make judgments," the first official said. "We need people to conduct the final checks, but that is not easy at this point." "It is true that we are stretched compared with other banks that have branches in places such as London and New York," the official added. Trading volumes have so far remained subdued as foreign banks appear to be observing how the new system settles in. "So far, foreign banks are closely watching market moves after the opening, and we do not see trading volume exploding," the second official said. "But if trading volume increases later, we will have to expand the number of rotating staff or hire new employees." The staffing challenge extends beyond banks' existing non-deliverable forward (NDF) operations. While NDF desks can monitor offshore won movements, the new 24-hour onshore dollar-won market requires banks to support deliverable spot transactions, settlement, price-making, risk management and operational supervision throughout the trading session. Some lenders are expected to redeploy FX derivatives dealers or rely more heavily on automated hedging systems, but bankers say additional manpower remains unavoidable. Foreign-exchange brokers have also adjusted staffing plans, introducing overnight shifts and rotating schedules ahead of the launch. The Ministry of Economy and Finance and the Bank of Korea said banks, securities firms, brokers and exporters had prepared for the new framework through changes to internal rules, staffing, systems and test trading. The 24-hour regime applies to the interbank dollar-won market rather than all retail foreign-exchange services. Customer remittances, currency exchange and corporate FX transactions during overnight hours will continue to depend on each institution's staffing, systems and risk-management policies. Market participants say the longer trading window could strengthen South Korea's case for inclusion in MSCI's developed-market index, although success will ultimately depend on offshore liquidity, tighter bid-ask spreads and sustained foreign participation rather than trading hours alone. 2026-07-06 17:40:02 -
Business shutdown at record pace as Korea's self-employed squeeze deepens SEOUL, July 06 (AJP) -South Korea saw nearly 84 business closures for every 100 new business registrations last year, the highest ratio in 12 years, reflecting a sharp slowdown in entrepreneurship amid a prolonged economic downturn. A record 317,406 businesses that had operated for five years or more shut down last year, accounting for 32.5 percent of all closures. More than half cited sluggish business conditions as the reason for closing, the highest share since 2009 in the aftermath of the global financial crisis. The number of active food service businesses fell 1.9 percent from a year earlier to 798,969 at the end of 2025, dropping below the 800,000 mark, according to National Tax Service data released Monday. New openings in the sector fell 13.6 percent to 130,114, the steepest decline since comparable data began in 2011. Closures totaled 142,557, exceeding new openings and leaving the sector with a net decline of 12,443 businesses, five times larger than the previous year’s decrease of 2,491. The decline was concentrated among restaurants that had survived for years. A total of 41,659 restaurants that had operated for at least five years shut down last year, the largest number since comparable data began in 2007. Restaurants with more than 20 years of operation also posted a record 2,797 closures, up 61 percent from 2021. Across all industries, the number of active businesses stood at 10.32 million at the end of last year, up 1.7 percent from a year earlier, the slowest growth since comparable data began in 2005. New businesses fell 4.1 percent to 1.17 million, extending their decline for a fifth consecutive year and marking the lowest level since 2014. Closures declined 3.2 percent to 975,681 after exceeding 1 million for the first time in 2024, but the ratio of closures to new openings rose to 83.5 percent, the highest since 2013. Separate industrial data showed a similar gap between the broader service-sector recovery and conditions facing restaurants. Accommodation and food service output rose 0.9 percent on-year in the first five months of 2026, compared with a 4.2 percent increase in overall service output, according to KOSIS and industrial activity data. Within the sector, accommodation output rose 2.7 percent, while restaurants and bars increased just 0.6 percent. Self-employed borrowers’ loans from financial institutions stood at 1,095.5 trillion won at the end of the first quarter, the largest amount since related data began in 2012, according to Bank of Korea data submitted to Rep. Park Sung-hoon. Overdue loans reached 22.3 trillion won, up 2 trillion won from the end of 2025 and also the largest on record, while the delinquency rate rose to 2.04 percent, the highest since the second quarter of 2015. Korea Credit Data said total loans held by individual business owners stood at 732.2 trillion won in the first quarter, up 3 trillion won from the previous quarter, while delinquent loans rose 12.6 percent to 14.6 trillion won. Of the 3.608 million individual business owners with loans, 501,000, or 13.9 percent, were classified as closed businesses, according to KCD. KCD also said average sales per individual business establishment rose 1.89 percent from a year earlier to 42.58 million won in the first quarter, while average costs increased 3.36 percent to 32.59 million won. Profit, measured as sales minus costs, fell 2.63 percent to 9.99 million won, and the operating margin declined 1.09 percentage points to 23.5 percent. The Bank of Korea said in its June Financial Stability Report that loans to self-employed borrowers accounted for 28.5 percent of all financial-sector loans at the end of the first quarter. The central bank said risks in the self-employed sector were concentrated among small-scale businesses, face-to-face service operators, real estate-related borrowers, older self-employed borrowers and vulnerable borrowers. 2026-07-06 13:04:28 -
Korea's FX market shifts to 24-hour system in bid to globalize won SEOUL, July 06 (AJP) -South Korea's foreign exchange market began operating on a near 24-hour basis Monday, a milestone reform aimed at making the won more accessible to global investors and strengthening the country's case for inclusion in developed-market indexes. Under the new framework, spot trading will run continuously from 6 a.m. Monday to 6 a.m. Saturday during U.S. daylight-saving time, with the opening and closing shifting to 7 a.m. during U.S. winter time. Deputy Prime Minister and Finance Minister Koo Yun-cheol visited Hana Bank's dealing room in central Seoul at 7:30 a.m. to inspect market conditions on the first day of the new trading regime. Officials from the Ministry of Economy and Finance, the Bank of Korea, Hana Financial Group and Hana Bank attended alongside dealers from domestic banks, overseas branches and exporting companies. The reform marks the final step in a gradual expansion of Korea's FX trading hours. The onshore market operated from 9 a.m. to 3 p.m. between 2005 and 2016 before the closing time was extended to 3:30 p.m. Trading hours were lengthened again in July 2024 to run until 2 a.m. the following day, overlapping with London trading. Despite the launch, the Korean won weakened in early Monday trading, with the U.S. dollar approaching the 1,530-won level. The finance ministry described the overhaul as more than a simple extension of trading hours, calling it a core piece of financial-market infrastructure needed to bring Korea's foreign-exchange market closer to developed-market standards. The ministry said the reform reflects confidence in Korea's external fundamentals, including a record current-account surplus and rising foreign demand for Korean assets following the country's inclusion in the World Government Bond Index. Koo called the launch the starting point for the won's global expansion, saying investors, exporters and importers will be able to trade the currency without being constrained by Seoul business hours. The government expects the longer trading window to allow companies to manage currency risks in real time while creating new business opportunities for domestic financial institutions and brokers. Bank of Korea Assistant Governor Kwon Min-soo said the broader trading session should deepen liquidity and broaden participation in the foreign-exchange market. He added that authorities would closely monitor market conditions and the impact of the new framework. Market participants attending Monday's meeting expressed support for the reform and said banks and companies planned to make active use of the expanded trading environment. The launch also comes as Seoul continues its long-running effort to gain admission to MSCI's developed-market index. MSCI last month kept South Korea in its emerging-market category in its 2026 market classification review, again citing foreign-exchange accessibility as one of the main obstacles. The index provider said the won remains a non-deliverable offshore currency and that liquidity during Korea's extended onshore trading hours has yet to reach the level needed to support execution comparable with developed markets. Market analysts say the extended trading session could strengthen Korea's MSCI case if it enables foreign investors to exchange and hedge won positions throughout global trading hours while reducing reliance on offshore non-deliverable forwards. A deeper overnight market could also improve price discovery and transparency. Whether the reform succeeds, however, will depend less on the official trading schedule than on the liquidity it attracts, bid-ask spreads, foreign participation and settlement efficiency during offshore hours. Other market-access issues also remain under MSCI's review, including omnibus accounts, in-kind transfers, pre-settlement funding requirements and operational burdens related to short-selling compliance. The impact on the bond market is expected to be indirect. Government bonds themselves will not trade around the clock, but overnight moves in the dollar-won exchange rate and swap market may be reflected more quickly when Seoul's bond market opens. If the won becomes more stable and hedging conditions improve, the new system could support foreign demand for won-denominated government bonds as WGBI-related inflows accelerate. Conversely, sharp currency swings during relatively thin overnight trading could weigh on bond prices by raising concerns over imported inflation, financial stability and the Bank of Korea's policy outlook. The finance ministry said maintaining market stability and ensuring smooth settlement under the expanded trading system remain the government's top priorities. Authorities plan to maintain around-the-clock market monitoring while pressing ahead with additional reforms, including a full-scale offshore won settlement system scheduled to begin operation in January 2027. 2026-07-06 10:37:50 -
Bond rally signals sobriety on Korea's economy – weak without chips SEOUL, July 03 (AJP) - From the look of the sovereign bond market in July, South Korea's economy is running solidly on strong exports while inflation, despite energy shocks from the prolonged Gulf crisis, remains broadly contained around 3 percent, suggesting the Bank of Korea may need no more than one additional rate hike from the current 2.50 percent. Compared with the wild swings in equities and the won's slide to near three-decade lows, South Korea's bond market has remained remarkably stable, supported by steady foreign inflows since the country's sovereign debt joined the FTSE Russell World Government Bond Index in April. The bond rally has also brought the Bank of Korea's terminal rate back into focus, with investors increasingly questioning how far the central bank can tighten policy when sluggish domestic demand remains masked by the semiconductor-led export boom. The three-year government bond yield fell 1.9 basis points to 3.728 percent by midday Friday, while the benchmark 10-year yield dropped 2.1 basis points to 4.162 percent. Both yields are now about 20 basis points below their June 8 peaks of 3.940 percent for the three-year yield and 4.348 percent for the 10-year benchmark. Unlike the equity market, battered by record foreign selling, the bond market has attracted steady foreign inflows. According to the Ministry of Economy and Finance, foreign investors bought a net 37.3 trillion won ($26.9 billion) of Korean government bonds on a trade-date basis between March 30 and June 26 following WGBI inclusion. On a settlement-date basis, net purchases totaled 30.7 trillion won between April 1 and June 26. The WGBI effect has been most visible in the cash bond market and around month-end portfolio rebalancing rather than in every intraday move. On June 30, traders cited foreign futures buying, month-end WGBI demand and solid absorption of a 30-year government bond auction as drivers of a broad rally. Foreign investors on Friday bought three-year government bond futures but sold 10-year contracts, suggesting the day's rally was driven not only by WGBI-related inflows but also by improving domestic and global market conditions. The recent strength in bonds therefore reflects a combination of structural foreign demand and growing confidence that the Bank of Korea may not need to tighten policy much beyond 3 percent. Inflation, the weak won, rising home prices and household debt all provide arguments for further tightening. At the same time, softer consumption, fragile small businesses and uneven domestic demand continue to raise doubts about how restrictive monetary policy can become without weighing excessively on the broader economy. The debate is therefore shifting beyond whether the Bank of Korea will raise its benchmark rate from 2.50 percent to 2.75 percent or even 3.00 percent. The more important question is whether policymakers can justify pushing rates above that level and maintaining restrictive policy for an extended period. The central bank has left that option open. At its May policy meeting, the Bank of Korea kept its benchmark rate unchanged at 2.50 percent. Two Monetary Policy Board members dissented in favor of a 25-basis-point increase, while the central bank raised its 2026 growth forecast to 2.6 percent and its inflation forecast to 2.7 percent. The next policy meeting is scheduled for July 16. Governor Shin Hyun-song said in mid-June that inflation was likely to remain above target for a considerable period and that policy should respond in a timely manner to preserve price stability. Economists remain divided over how high rates may eventually rise. ING economist Kang Min-joo said the Bank of Korea had moved closer to another increase but cautioned that the benefits of the semiconductor-led expansion might not spread evenly across the broader economy. Higher energy costs and inflation could weigh disproportionately on services and construction, supporting a more gradual tightening path. Some domestic analysts still expect the policy rate to reach 3.25 percent. Cho Yong-gu of Shinyoung Securities and Kong Dong-rak of Daishin Securities said the Bank of Korea's updated policy guidance and increasingly hawkish communication strengthened the case for two additional hikes this year, bringing the benchmark rate to 3.00 percent by year-end and 3.25 percent in early 2027. Kim Myung-sil of iM Securities and Yoon Yeo-sam of Meritz Securities pointed to the Bank of Korea's August forecast revision as the next key milestone. Another upward revision to growth and inflation projections could shift the median policy outlook toward 3.25 percent or encourage more board members to support rates above that level. Woori Financial Research Institute has taken an even more aggressive view, projecting two rate hikes in the second half of this year and two more in the first half of next year, lifting the benchmark rate to 3.50 percent. The divergence in forecasts reflects an increasingly uneven recovery. The Bank of Korea's composite consumer sentiment index rose 0.5 point to 106.6 in June, remaining above the long-term average of 100. Beneath the headline improvement, however, the picture was less encouraging. Current living conditions stood at 94, expectations for future living conditions at 97 and the outlook for the broader economy at 92, all below the neutral threshold. While booming equity markets and exports have lifted overall sentiment, households remain considerably less optimistic about their own finances and the domestic economy. Inflation continues to limit the scope for a stronger recovery in consumption. Consumer prices rose 3.2 percent from a year earlier in June, while the living necessities index increased 3.4 percent. Core inflation, excluding food and energy, remained at 2.5 percent. Producer prices have also stayed elevated. The producer price index rose 0.8 percent from the previous month and 8.5 percent from a year earlier in May, reflecting broad-based increases in both industrial goods and services and adding further cost pressures on businesses. Retail spending has improved only marginally. Retail sales edged up 0.1 percent from April and 1.7 percent from a year earlier in May. Sales of durable goods, including automobiles, declined both on a monthly and annual basis, offset by gains in semi-durable and non-durable goods. Service-sector output rose 1.3 percent from the previous month and 4.9 percent from a year earlier in May, driven largely by financial and insurance activities as the stock market rally boosted trading and related services. The economy expanded a stronger-than-expected 1.8 percent in the first quarter from the previous three months, led overwhelmingly by semiconductors and related investment. Private consumption rose just 0.6 percent, compared with a 6.6 percent increase in facility investment and a 5.9 percent rise in exports driven largely by information technology products and semiconductors. Exports reached a record $496.7 billion in the first half, with semiconductors accounting for nearly half of total shipments, raising hopes that annual exports could surpass the $1 trillion milestone for the first time. In contrast, nearly 976,000 businesses closed last year, with an overall closure rate of 8.64 percent. Among six major small-business sectors, the closure rate reached 11.08 percent, led by retail at 15.40 percent and restaurants at 15.14 percent. More than half of all closures were attributed to deteriorating business conditions. In May, the number of self-employed people with employees rose by 80,000 from a year earlier, while those without employees increased by 29,000, pointing to continued business turnover but persistently weak profitability. For now, the bond market is looking beyond the chip boom, betting that weak domestic demand will keep inflation contained enough to make an aggressively restrictive monetary policy unnecessary. 2026-07-03 16:57:41