AJU PRESS ASIA FIRST NEWS AGENCY

Journalist

Kim Yeon-jae
Kim Yeon-jae김연재
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."
Latest by Kim Yeon-jae
  • US Treasury boosts bond buybacks as long-term yields surge
    US Treasury boosts bond buybacks as long-term yields surge SEOUL, August 20 (AJP) - The U.S. Treasury has calmed a surge in long-term borrowing costs by doubling buybacks of longer-dated bonds, but the move does little to address the forces behind the selloff as Washington continues to run large deficits and federal debt pushes past US$40 trillion. The Treasury said it would raise individual buybacks in the 10-to-20-year and 20-to-30-year sectors to at least $4 billion from $2 billion, with the higher limits applying from Sept. 9 through Nov. 4. The response was immediate, with the 30-year Treasury yield retreating to around 5.18 percent after touching 5.34 percent, its highest level since 2007. But the program remains small relative to the market it is attempting to stabilize, with maximum repurchases between early August and early November totaling about $83 billion against more than $32 trillion of publicly held U.S. debt. The gap becomes wider when measured against Washington's financing needs, as the Treasury expects to borrow $739 billion in privately held net marketable debt in the July-September quarter and another $628 billion in the final three months of the year. Buybacks can improve liquidity in older securities and redistribute duration across the yield curve, but they do not reduce the deficit that keeps generating new Treasury supply. That makes the expanded program a tool for easing market stress rather than a fundamental solution to the long-bond selloff. Citi's Dan Gottlander said the expanded operations could have a significant effect on longer maturities but noted that the program "does not change deficits," leaving the government to finance its borrowing elsewhere along the curve. Washington has also taken the unusual step of joining Japan in yen-buying intervention, another measure that can relieve immediate market pressure without changing the monetary, fiscal and supply forces driving currencies and long-term bond yields. The broader challenge is that the selloff is not confined to the United States, with Japanese long-term yields approaching multi-decade highs while borrowing costs in Germany and France have also risen sharply, increasing competition for global fixed-income capital. The New York Fed's estimate of the U.S. 10-year term premium has climbed to around 80 basis points, close to a 12-year high, suggesting that investors are demanding greater compensation for holding long-term debt beyond expectations for the Federal Reserve's policy rate. Foreign demand has also become less certain, with Treasury holdings by Japan, Britain and China declining in June as higher yields elsewhere and changing portfolio incentives make it less certain that overseas buyers will absorb new U.S. issuance at existing prices. The pressure comes as total federal debt has crossed $40 trillion, including more than $32 trillion held by the public, while the Congressional Budget Office projects that publicly held debt will rise from around 101 percent of gross domestic product this year to 120 percent by 2036. The $40 trillion threshold is not itself a black swan because the U.S. debt trajectory is widely known, but the growing debt stock could amplify another shock if renewed inflation, higher oil prices, weak Treasury auctions or softer foreign demand force investors to demand materially higher long-term yields. For South Korea, the clearest transmission channel is the bond market because higher global term premiums can push up domestic long-term borrowing costs even without a change in the Bank of Korea's policy rate. That sensitivity was evident on Aug. 18, when the three-year Korean government bond yield rose 6.6 basis points to 3.862 percent while the 10-year jumped 10.2 basis points to 4.415 percent, the 20-year gained 11.7 basis points to 4.675 percent and the 30-year rose 10.8 basis points to 4.777 percent. The larger moves at the long end showed how a U.S. duration and fiscal shock can be transmitted into Korean borrowing costs independently of expectations for the BOK, potentially tightening financing conditions even if policymakers in Seoul do not raise the base rate further. The currency channel is less straightforward because higher U.S. yields driven by stronger growth or Fed tightening typically support the dollar, while yields rising because investors demand a larger fiscal-risk premium can coincide with dollar weakness. A more severe Treasury-market disruption could produce the opposite response, however, if global risk aversion triggers demand for dollar liquidity and puts renewed downward pressure on the won. Equities face a similar transmission channel through discount rates, as persistently higher long-term yields reduce the present value of future earnings and put particular pressure on technology and other growth stocks. South Korea's chip-heavy equity market is therefore exposed to renewed increases in global long-term rates even when domestic earnings remain strong, adding another channel through which U.S. fiscal conditions can influence Korean asset prices. Washington can buy time with larger Treasury buybacks and currency intervention, but it cannot buy back the deficit, and if the center of gravity in long-term yields continues shifting from Fed policy toward fiscal supply and term premiums, Korea may increasingly find itself importing U.S. fiscal risk as well as U.S. monetary policy. AJP Takeaways • The U.S. Treasury doubled longer-dated bond buybacks to at least $4 billion per operation, but the program remains small compared with Washington's borrowing needs and more than $32 trillion of publicly held debt. • U.S. buybacks can ease liquidity stress and temporarily lower yields, but they do not reduce the fiscal deficit that keeps generating new Treasury supply. • South Korea's bond market showed direct spillovers on Aug. 18 as 10- to 30-year government yields rose more sharply than the three-year yield during the global long-bond selloff. • South Korean markets remain exposed to U.S. fiscal risk through long-term borrowing costs, the won and equity valuations even without another change in the BOK's policy rate. 2026-08-20 15:12:33
  • South Koreas net foreign assets shrink as stock rally boosts foreign-held shares
    South Korea's net foreign assets shrink as stock rally boosts foreign-held shares SEOUL, August 20 (AJP) - South Korea's net foreign assets fell sharply to US$64 billion in the second quarter, as a stock market rally boosted the value of South Korean shares held by foreign investors, even as the country's net debt balance improved. The country's net international investment position or net IIP fell by $689.5 billion from $753.6 billion at the end of March, according to preliminary data released by the Bank of Korea on Thursday. "What matters, ultimately, is why it fell," the BOK said in a separate explanatory memo, saying that an increase in equity liabilities caused by higher stock valuations is different from an increase in debt, which must be repaid. South Korea's external financial assets rose $201.7 billion to $3.08 trillion, while external financial liabilities jumped by $891.2 billion to $3.02 trillion. The KOSPI surged 67.8 percent in the second quarter to 8,476.5 from 5,052.5, sharply lifting the market value of Korean shares already held by overseas investors. Actual transactions moved in the opposite direction from the headline net IIP, adding $98.4 billion to South Korea's net position while price, exchange-rate and other non-transaction effects reduced it by $787.9 billion. Foreign portfolio-investment liabilities increased $859.3 billion during the quarter, with equity securities accounting for $848.1 billion of the increase. Foreign investors, however, were net sellers of $63.9 billion of Korean equities, while valuation and other non-transaction effects added $912.0 billion to the value of their remaining holdings. The increase in South Korea's external financial liabilities therefore reflected higher valuations of foreign-held shares rather than a comparable influx of new foreign investment. Korean investors were also accumulating assets abroad, with overseas portfolio holdings rising $142.7 billion and equity holdings gaining $146.2 billion as net purchases continued and global stock markets advanced. The BOK linked the unusual pattern partly to semiconductor-led export strength, which supported current-account surpluses and overseas asset accumulation while boosting earnings expectations and domestic share prices. Transaction effects associated with current-account surpluses added $191.0 billion to South Korea's net foreign assets in the first half, but the central bank said gains in foreign-held Korean equities outweighed that contribution. External financial liabilities in the IIP include foreign ownership of domestic equities and direct-investment stakes as well as bonds, loans and other debt instruments. A rise in the price of foreign-held Korean shares can therefore reduce the net IIP without creating an equivalent increase in principal or interest that South Korean borrowers are required to repay. That distinction was visible in South Korea's net external assets in debt instruments, which rose $2.3 billion to $367.8 billion in the second quarter, marking the first increase in three quarters. External assets in debt instruments increased $40.7 billion to $1.1806 trillion, while external debt rose $38.4 billion to $812.8 billion. Short-term external debt nevertheless increased $15.0 billion to $198.5 billion, pushing its ratio to reserve assets to 46.5 percent from 43.3 percent and its share of total external debt to 24.4 percent from 23.7 percent. The BOK said part of the increase reflected won deposits and unsettled balances generated by foreign equity sales, with the rise in short-term external debt exceeding the increase in reserve assets during the quarter. The central bank cited Nokia-era Finland, ASML in the Netherlands and TSMC in Taiwan as previous cases in which soaring valuations of dominant exporters with high foreign ownership drove down national net foreign-asset positions. South Korea's equity market is also highly concentrated, with Samsung Electronics common shares accounting for an average 28.24 percent of main-board capitalization in June and SK hynix for 24.96 percent, or a combined 53.2 percent, according to the Korea Financial Investment Association. The BOK said such valuation-driven drops were associated with unusually sharp stock gains and that Korea's net IIP could increase again if domestic share-price gains moderate while current-account surpluses continue. AJP Takeaways: • Bank of Korea preliminary data show South Korea's net IIP fell by $689.5 billion to $64.0 billion in the second quarter, with valuation changes driving the bulk of the decline. • Foreign investors sold a net $63.9 billion of South Korean equities even as valuation and other non-transaction effects added $912.0 billion to the value of their remaining holdings. • South Korea's net external assets in debt instruments increased $2.3 billion to $367.8 billion, distinguishing the collapse in headline net IIP from the country's contractual external debt position. • Samsung Electronics and SK hynix accounted for a combined 53.2 percent of main-board capitalization on a June-average basis, increasing the effect of chip-share valuations on South Korea's international balance sheet. 2026-08-20 14:07:58
  • Won closes below 1,400 against greenback for 1st time in 11 months
    Won closes below 1,400 against greenback for 1st time in 11 months SEOUL, August 19 (AJP) - The South Korean won closed daytime trading below 1,400 per dollar for the first time in nearly 11 months on Wednesday, while government bond yields fell as a sharp stock selloff boosted demand for safer assets. The won strengthened 14.1 won from the previous session to close at 1,397.7 per dollar, compared with Tuesday's close of 1,411.8. It marked the first daytime close below 1,400 since Sept. 29, 2025, when the currency ended at 1,398.7. Exporter dollar selling and broader weakness in the U.S. currency supported the won despite heavy foreign selling in Korean equities. The KOSPI plunged 5.8 percent to 6,471.17 as technology shares came under heavy selling pressure, with the decline triggering a program-trading sidecar during the session. The South Korean government bonds also strengthened, with the three-year yield falling 4.9 basis points to 3.798 percent and the 10-year yield declining 4.5 basis points to 4.337 percent. The bond rally began after U.S. Treasury yields eased overnight, while the steep decline in Korean stocks added to demand for government debt. Gains extended in the afternoon after the Korea Development Institute raised its 2026 growth forecast to 3.2 percent from 2.5 percent, as the revision came in below levels some bond investors had braced for. Foreign investors also supported the short end of the market, buying more than 7,000 three-year government bond futures by early afternoon even as they remained net sellers of 10-year futures. Wednesday's decline partly reversed the previous session's bond selloff, when the three-year yield rose 5.1 basis points to 3.847 percent and the 10-year yield climbed 6.9 basis points to 4.382 percent. 2026-08-19 17:50:39
  • South Korea to raise FX reporting threshold for foreign banks
    South Korea to raise FX reporting threshold for foreign banks SEOUL, August 19 (AJP) - South Korea will raise the reporting threshold for foreign-currency borrowing by local branches of foreign banks to US$100 million from $50 million, as part of efforts to ease foreign-exchange rules and improve market access, the Ministry of Economy and Finance said on Wednesday. The limit on cash-pooling arrangements will also be raised to at least $100 million from $50 million, Finance Minister and Deputy Prime Minister Koo Yun-cheol said at a meeting with the American Chamber of Commerce in Korea or AMCHAM in central Seoul earlier in the day. Raising the borrowing threshold would allow foreign bank branches to borrow larger amounts of foreign currency before triggering the existing reporting requirement, rather than increasing a ceiling on the amount they are permitted to borrow. The measures follow recommendations from AMCHAM as South Korea works to make its financial and foreign-exchange systems more in line with global standards. The move follows the government's won internationalization roadmap unveiled in July and the shift to round-the-clock foreign-exchange trading, while an offshore won settlement system is scheduled to formally begin operating in January 2027. Koo also pointed to recent capital-market reforms, including an expansion of directors' fiduciary duties to shareholders and South Korea's phased inclusion in the World Government Bond Index, which began in April. Wednesday's meeting at the Grand Hyatt Seoul brought together about 150 participants, including AMCHAM Chairman James Kim, U.S. government officials and executives from Korean and foreign companies. Koo called on U.S. companies to expand investment in South Korea and provide policy feedback based on their experience in the country, saying the government would review proposals raised at the meeting with relevant ministries. 2026-08-19 16:48:27
  • Won rises to strongest level in nearly 11 months
    Won rises to strongest level in nearly 11 months SEOUL, August 19 (AJP) - The South Korean won strengthened to below 1,400 per dollar on Wednesday for the first time in nearly 11 months, amid fading expectations of a September Fed rate cut and steady exporter dollar selling. The dollar-won exchange rate stood at 1,399 around noon, breaking below the 1,400 mark for the first time since Oct. 2, 2025, when it was at 1,399.5. As of 2:50 p.m., it stood at 1,398.3, compared with the previous day's daytime close of 1,411.8. The strengthening won came after a sharp reversal for the Korean currency, which weakened to 1,549.4 per dollar at the end of June before recovering rapidly in July and August. The move has largely been driven by changing expectations for U.S. interest rates, with weaker economic data reducing the likelihood of further Fed rate hikes in the near term. U.S. consumer prices rose just 0.1 percent in July, producer prices were unchanged and retail sales unexpectedly fell 0.6 percent, their first decline in nine months. Fed funds futures priced in about a 65-percent chance of no rate change in September, while the dollar index hovered around 99.65, near multi-month lows. The Fed is due to release minutes from its July policy meeting later in the day, offering investors another look at policymakers' appetite for further tightening. Local dollar supply has added to the pressure, with Korean exporters continuing to convert overseas earnings into won rather than concentrating dollar sales around month-end as they traditionally have. The stronger currency also comes as South Korea's domestic growth outlook improves, with the state-run Korea Development Institute raising its growth forecast for this year to 3.2 percent from 2.5 percent on stronger global demand for semiconductors and artifical intelligence (AI(-related investment. The KDI's revised forecast would provide further support for the won, while a weaker dollar and continued exporter selling remained key factors behind its recent gains. 2026-08-19 15:57:06
  • KDI raises South Koreas growth forecast to 3.2%
    KDI raises South Korea's growth forecast to 3.2% SEOUL, August 19 (AJP) - South Korea is expected to grow 3.2 percent this year, the Korea Development Institute said on Wednesday. The revised outlook is higher than its previous forecast of 2.5 percent in May, as well as the government's 3 percent estimate and the Bank of Korea (BOK)'s current forecast of 2.6 percent. The state-run think tank attributed the stronger outlook to the global artificial intelligence (AI)-led boom, which has boosted semiconductor exports and facility investment, while giving the BOK more room to tighten monetary policy despite an uneven domestic recovery. KDI also raised its growth forecast for next year to 2.2 percent from 1.7 percent, expecting some of the semiconductor windfall to eventually boost household consumption and employment. It said semiconductors accounted for about 0.6 percentage point of the 0.7-point increase in this year's growth forecast, driven by higher exports, related equipment investment and income effects. More than half of projected growth was linked to the chip sector. KDI also raised its forecast for export volumes to 8.7 percent from 4.6 percent and its equipment investment forecast to 7.9 percent from 3.3 percent. Its current-account surplus forecast surged to $359.7 billion from $239.0 billion as higher semiconductor export prices delivered a sharp improvement in South Korea's terms of trade. The strong growth figures, however, mask an economy where gains remain concentrated among major chipmakers and have yet to reach household incomes, small businesses and domestic services more broadly. Private consumption is projected to expand 2.3 percent, only 0.1 percentage point above KDI's May estimate, while construction investment is expected to edge up just 0.1 percent amid a prolonged regional housing slump and elevated building costs. KDI cut its forecast for employment growth to 110,000 from 170,000, reflecting the semiconductor sector's limited capacity to generate jobs and continued weakness in construction and non-chip manufacturing. Kim Meeroo, head of KDI's macroeconomic and financial policy division, said the 3.2 percent expansion was strong relative to South Korea's potential growth rate but would feel considerably weaker to households because its benefits were concentrated in a narrow part of the economy. KDI kept its overall and core inflation forecasts at 2.7 percent and 2.5 percent and said the policy rate should stay slightly above the nominal neutral rate, which is estimated to be in the mid-2 percent range, though it did not call for a rate hike at any specific BOK meeting. KDI identified a sudden reversal in global AI investment as the principal downside risk because South Korea's rising dependence on semiconductors has made its broader outlook increasingly sensitive to the global chip cycle. Separately, BOK data released earlier in the day showed household debt rose by 25.9 trillion won ($17.4 billion) to a record 2,019.8 trillion won ($1.36 trillion) in the second quarter, surpassing 2,000 trillion won for the first time and marking the largest quarterly increase since the third quarter of 2021. The combination of above-potential growth, persistent underlying inflation and renewed household borrowing has prompted several economists to retain additional rate-hike forecasts even as consumption, construction and employment remain subdued. Park Jeong-woo, an economist at Nomura Securities, said that average retail sales contracted in the second quarter and that labor conditions remained weak, but put the probability of an Aug. 27 rate hike at 60 percent. Others remain more cautious, with Woori Financial Research Institute and KB Securities expecting the BOK to hold at 2.75 percent this month while delivering a hawkish signal, potentially accompanied by one or two dissenting votes for an increase. The latest data therefore reinforce expectations that the BOK's tightening cycle has further to run, but the weakness beneath South Korea's chip-led growth continues to divide economists over whether the next increase comes on Aug. 27 or later in the year. AJP Takeaways • KDI raised South Korea’s 2026 growth forecast to 3.2 percent from 2.5 percent, attributing 0.6 percentage point of the upgrade to semiconductors and their spillover effects. • Export volume is forecast to rise 8.7 percent and equipment investment 7.9 percent, while private consumption grows 2.3 percent, construction investment 0.1 percent and employment by just 110,000. • KDI's outlook and record household credit have kept Bank of Korea rate-hike calls alive ahead of Aug. 27, although economists remain divided between a back-to-back increase and a hawkish hold. 2026-08-19 15:32:37
  • Household debt surpasses over 2,000 trillion for 1st time
    Household debt surpasses over 2,000 trillion for 1st time SEOUL, August 19 (AJP) - South Korea's total household debt surpassed 2,000 trillion won for the first time in the second quarter, driven by increased borrowing for home purchases and a stock-market rally, adding to the Bank of Korea (BOK)'s policy dilemma after it raised its benchmark interest rate last month. Outstanding household credit reached a record 2,019.8 trillion won (US$1.35 trillion) at the end of June, up 25.9 trillion won from three months earlier, according to preliminary BOK data released on Wednesday. The increase was larger than the revised 14.8 trillion won gain in the first quarter and marked the biggest quarterly rise since the 34.8 trillion won increase recorded in the third quarter of 2021. Household credit rose 3.6 percent from a year earlier and 1.3 percent from the previous quarter. The BOK's household credit figure covers household loans and unpaid credit card purchases. Household loans climbed 24.9 trillion won to 1,891.3 trillion won, while sales credit increased 900 billion won to 128.5 trillion won. Growth in housing-related loans accelerated to 12.2 trillion won from 8.1 trillion won, while other loans, including unsecured bank borrowing and credit extended by securities firms, more than doubled to 12.8 trillion won from 5.4 trillion won. Other loans exceeded the increase in housing-related borrowing for the first time since the second quarter of 2021, when they rose 23.5 trillion won and 17.6 trillion won, respectively. Kim Sung-jun, head of the BOK's financial statistics team, said housing-related and other loans each accounted for roughly half of the second-quarter increase. Housing borrowing was boosted by transactions brought forward ahead of the scheduled end of a temporary suspension of heavier capital-gains taxes on owners of multiple homes, Kim said. The surge in other loans reflected stronger unsecured lending by banks and an unusually large increase in credit supplied by securities firms as buoyant equity prices encouraged leveraged investment. Kim said the stock-market correction that began in the third quarter should help slow securities-related borrowing, suggesting part of the second-quarter jump may prove temporary. The shift was also visible across lenders, with deposit banks adding 13.3 trillion won of household loans after a 200 billion-won decline in the first quarter, while lending by other financial institutions increased 8.6 trillion won from 5.5 trillion won. Non-bank depository institutions added 3.1 trillion won, down sharply from 8.2 trillion won in the previous quarter, as tighter government loan-management measures restrained lending, Kim said. The 2,000 trillion-won milestone is striking, but it does not by itself mean household leverage is rising faster than the economy. Kim said the household-debt-to-nominal-GDP ratio had declined from 88.9 percent in the third quarter of 2025 to 88.1 percent at year-end and 85.3 percent in the first quarter of 2026, although second-quarter nominal GDP data are not yet available. The government has meanwhile relaxed its aggregate household-loan growth guideline to 3 percent from 1.5 percent, potentially adding to credit supply after the second-quarter acceleration. Kim said the effect of loans tied to relocation for redevelopment and reconstruction projects would take time to assess because those projects add housing supply only with a lag. The BOK raised its base rate by 25 basis points to 2.75 percent in July, leaving policymakers to balance renewed asset-backed borrowing against the heavier debt-service burden that further tightening would impose on households. For the central bank, the composition of credit may now matter as much as the headline total: even with the debt-to-GDP ratio drifting lower, a renewed flow of borrowed money into property and stocks can amplify asset prices and financial vulnerabilities. AJP Takeaways · South Korea's household credit reached a record 2,019.8 trillion won at the end of June 2026, rising 25.9 trillion won from the first quarter and exceeding 2,000 trillion won for the first time. · Housing-related loans rose 12.2 trillion won, while other loans increased 12.8 trillion won and outpaced housing borrowing for the first time since the second quarter of 2021 amid strong property transactions and stock-market credit. · The BOK said South Korea's household-debt-to-GDP ratio fell to 85.3 percent in the first quarter, but the renewed borrowing surge and the government's easing of its loan-growth guideline to 3 percent add to the policy trade-off after July's rate increase. 2026-08-19 13:44:44
  • Won stays firm as Korean bond yields jump
    Won stays firm as Korean bond yields jump SEOUL, August 18 (AJP) - The South Korean won edged higher against the dollar on Tuesday as foreign equity purchases and exporter dollar sales outweighed renewed Middle East concerns, while government bond yields rose sharply after a surge in U.S. long-term rates and a domestic 10-year debt auction. The won closed daytime trading at 1,411.8 per dollar, strengthening by 1.2 won from the previous session's close of 1,413. The currency opened at 1,417.0 and briefly strengthened toward the 1,409 level as foreign investors bought Korean shares and exporters sold dollars, before giving back part of the gain. The expiry of a U.S.-Iran ceasefire memorandum and Brent crude above US$90 a barrel supported the dollar, while the KOSPI's reversal from an early rally to a 1.55 percent loss limited further gains in the won. The three-year Korean government bond yield rose 5.1 basis points to 3.847 percent, while the 10-year yield climbed 6.9 basis points to 4.382 percent, according to final afternoon quotations from the Korea Financial Investment Association. The 20-year yield jumped 10.3 basis points to 4.661 percent, the 30-year rose 8.2 basis points to 4.751 percent and the 50-year advanced 8.1 basis points to 4.661 percent, with all three reaching new year-to-date highs. The gap between the 10-year and three-year yields widened by 1.8 basis points to 53.5 basis points, although both yields retreated from their morning reference levels as the initial selloff eased. The U.S. 30-year Treasury yield reached 5.321 percent in Asian trading, its highest since 2007, while a 3 trillion won ($2.1 billion) Korean 10-year bond auction added to the amount of long-term debt the market had to absorb. With the Bank of Korea due to decide next week whether to raise its base rate again on Aug. 27, the increase in the policy-sensitive three-year yield suggests markets continue to price a meaningful chance of another hike. The won's strength near the low 1,410s reduces imported-inflation pressure, however, while sharply higher market borrowing costs give policymakers a counterargument for holding rates steady and assessing the tightening already under way. 2026-08-18 17:43:13
  • Race heats up for BOK deputy governor as incumbent steps down this week
    Race heats up for BOK deputy governor as incumbent steps down this week SEOUL, August 18 (AJP) - Park Jong-woo, a high-ranking official at the Bank of Korea who currently serves as an assistant governor, is emerging as a leading contender for the deputy governor post, which combines responsibility for day-to-day operations with a vote on interest rates. Incumbent Ryoo Sang-dai's term expires Aug. 20. Other senior BOK officials including Kwon Min-soo, and former BOK executives Lee Hwan-seok, Chung Kyu-il, Lim Hyung-jun and Cho Hong-kyun are also among the potential candidates. The deputy governor, the BOK's No. 2 official, is appointed by the president upon the governor's recommendation for a three-year term and serves as one of the seven members of its monetary policy board. Park is considered a strong candidate because he currently oversees monetary policy and financial markets, giving him direct experience in the two areas at the center of the BOK's response to inflation, household debt and global market volatility. He joined the BOK in 1996 and served in several of the central bank's key departments. Park’s often restrained public remarks suggest a cautious, data-dependent approach that places considerable weight on inflation, household debt and financial-market stability, rather than positioning him firmly as either hawkish or dovish. In September 2024, he said market expectations for two or more rate cuts had moved too far ahead of the central bank and argued that policymakers should first assess whether government measures were slowing housing prices and household borrowing. Park later rejected interpretations that the BOK had abruptly shifted toward rate increases, saying in November 2025 that the direction of monetary policy could not change so quickly, suggesting a moderately hawkish but pragmatic bias that resists both premature easing and sudden policy reversals. He has no public interest-rate voting record, making it difficult to predict his policy preferences. Meanwhile, Kwon offers a different set of strengths centered on foreign-exchange and international financial policy, having worked in key areas of the BOK and been seconded to both the foreign and finance ministries since joining the central bank in 1995. Lee, currently executive vice president of the Korea Housing Finance Corp., previously served as a BOK deputy governor and held senior positions in monetary policy, economic research, financial markets and the secretariat supporting the monetary policy board. Other candidates reportedly include Chung, a former BOK deputy governor and economic-statistics specialist; Lim, whose experience spans monetary policy and organizational management; and Cho, who has worked in policy planning, regulation and institutional affairs. The BOK raised its base rate by 25 basis points to 2.75 percent on July 16 and has kept the possibility of further tightening open as core inflation, housing prices and household-credit risks persist. The appointment will be closely watched ahead of the Aug. 27 rate-setting meeting because a new deputy governor taking office before then could immediately participate as a voting board member. Once appointed, Park would signal continuity in the BOK's cautious, financial-stability-focused approach, but his appointment alone would not determine whether the board delivers a second consecutive hike or leaves rates unchanged while retaining a hawkish signal. AJP Takeaways • Park Jong-woo has emerged as a leading candidate to succeed Ryoo Sang-dai as the central bank's senior deputy governor. • Park's remarks suggest a data-dependent but moderately hawkish stance focused on inflation, household debt and preventing market expectations from moving ahead of policy. • Kwon Min-soo, Lee Hwan-seok and several former BOK executives are also in the reported field for a post that carries one of seven monetary policy board votes. 2026-08-18 17:06:11
  • Moodys raises growth forecast for South Korea, putting BOK in dilemma over rate hike
    Moody's raises growth forecast for South Korea, putting BOK in dilemma over rate hike SEOUL, August 18 (AJP) - Global ratings agency Moody's raised its growth forecast for South Korea to 3.5 percent in a report published last week. The stronger outlook could support another interest rate hike, although strong exports and already high borrowing costs may reduce the need for the Bank of Korea to raise rates again soon. The forecast also put South Korea's growth at 2.7 percent for next year. The 2026 forecast was 1 percentage point higher than Moody's 2.5 percent estimate in May and 1.7 percentage points higher than its 1.8 percent forecast in February. The latest estimate exceeds the South Korean government's 3 percent projection and the 3.2 percent average among eight major investment banks compiled by the Korea Center for International Finance as of the end of July. Moody's said the revision was largely driven by stronger demand for advanced memory chips as global investment in artificial intelligence (AI) grows. It expects the chip upcycle to remain strong until at least mid-2027, as South Korean suppliers face limited competition from alternative sources. However, the report did not change South Korea’s credit rating or signal an imminent rating change. The higher forecast does not mean the recovery is spreading evenly throughout the economy, as retail sales fell 1.7 percent in the second quarter before rebounding 2.7 percent in June and growth remains heavily concentrated in semiconductor exports and related investment. Headline consumer inflation slowed to 2.8 percent in July from 3.2 percent in June, but core inflation — which excludes volatile food and energy prices to show the underlying trend — edged up to 2.6 percent from 2.5 percent, while household credit and housing prices remain financial-stability arguments for further tightening. The Bank of Korea raised its base rate by 25 basis points to 2.75 percent on July 16, its first increase in three and a half years, and will decide on Aug. 27 whether to raise it for a second consecutive meeting. At around 2 p.m. Tuesday, the three-year Korean government bond yield was up 6.6 basis points at 3.862 percent and the 10-year yield was 10.3 basis points higher at 4.416 percent, with one basis point equal to 0.01 percentage point. Traders call the larger increase in the 10-year yield a bear-steepening of the curve, with the three-year yield responding more closely to expectations for the BOK's policy rate and the 10-year also reflecting longer-term growth, inflation, government bond supply and investor demand. The larger move in the 10-year yield reflected both higher U.S. long-term rates and supply pressure from Tuesday's 3 trillion won auction of 10-year Korean government debt, but the rise in the policy-sensitive three-year yield indicates that markets have not dismissed the possibility of an August increase. Official U.S. Treasury data put the 10-year yield 4 basis points higher at 4.72 percent and the 30-year up 6 basis points at 5.31 percent on Monday, before the 30-year cash-market yield reached 5.321 percent in Asian trading, its highest since June 2007, while the inflation-adjusted 30-year rate rose to 3.06 percent. Heavy borrowing by the U.S. government and AI companies has added to the pressure because issuers generally have to offer higher returns when bond supply grows faster than investor demand, pushing down the prices of existing bonds and raising their yields. The expiry of a 60-day U.S.-Iran ceasefire and uncertainty over the Strait of Hormuz also pushed Brent crude above $91 a barrel, preserving the risk that more expensive energy could feed into Korean inflation. South Korean government bond yields serve as reference rates for corporate debt and bank funding, meaning that persistently high yields can increase the cost of issuing corporate bonds and eventually lift rates on business loans, mortgages and other household borrowing. More expensive credit can discourage companies from investing and households from spending, producing an effect similar to a BOK rate increase even if the central bank leaves its policy rate unchanged. A weaker won can make imported oil, raw materials and food more expensive in local-currency terms, but the currency strengthened by 2.09 won to 1,413.39 per dollar on Tuesday, showing that higher U.S. yields had not yet generated additional imported-inflation pressure through the exchange rate. "Bond markets have already strongly reflected the shift in monetary policy, reducing the need for additional hawkish guidance," said Ahn Jae-kyun, an economist at Korea Investment & Securities. Ahn nevertheless maintained an August rate increase as his base case on Aug. 4, while estimating that markets were still assigning a probability of more than 50 percent to another move. Moody's growth revision, firmer core inflation and financial-stability risks support another increase, while the export-heavy recovery, higher market borrowing costs and a stronger won give the BOK reasons to assess the effects of its previous move before raising rates again. The Aug. 27 decision therefore remains open between another increase and a "hawkish hold," meaning that the BOK could leave rates unchanged while signaling that further tightening remains possible if oil, core inflation, the won or household credit deteriorates. AJP Takeaways • Moody's raised South Korea’s 2026 growth forecast to 3.5 percent in an Aug. 13 periodic review, up from 2.5 percent on May 11 and 1.8 percent on Feb. 12. • Higher government bond yields can raise corporate and household borrowing costs, partly tightening the economy even without another immediate BOK rate increase. • The BOK's Aug. 27 decision remains open because a stronger won reduces imported-inflation pressure, while core inflation, oil, housing and household credit continue to support a hawkish stance. 2026-08-18 16:10:11