East Asian rate decoupling: A tale of four economies SEOUL, January 16 (AJP) - East Asia is no longer a monolith but a disparate economic powerhouse that accounts for roughly a quarter of global GDP and a third of world trade. For years, the combined output of its leading quartet—China, Japan, South Korea and Taiwan—has surpassed that of the euro zone, underpinned by an export engine that remains the envy of the West. Beneath this shared headline strength, however, a deep monetary divergence is taking hold. Nowhere is the split more visible than in the policy corridors of the region’s central banks. As growth models diverge, so too do interest-rate paths—revealing sharply different economic realities among neighbors once viewed as a bloc. Japan: BOJ tightening stirs domestic friction and global tremors Since his appointment in 2023, Bank of Japan Governor Kazuo Ueda has moved decisively to dismantle Japan’s decades-long zero-rate regime. Starting with a hike from -0.1 percent to 0.1 percent in March 2024, the BOJ has delivered successive increases—to 0.25 percent, 0.5 percent and, most recently, 0.75 percent in December—bringing the benchmark rate to the brink of 1 percent. The pivot is fundamentally defensive. Consumer inflation has remained above 2 percent since 2022, a sustained stretch not seen since the bubble era. After years of dismissing inflation as transitory, the BOJ has been forced to respond to a cost-of-living squeeze that is increasingly entrenched. At the core of Japan’s inflation problem lies the yen. Ultra-low rates long enabled the yen carry trade, in which investors borrowed cheaply in yen to chase higher returns overseas. While this strategy supported exports, an excessively weak currency has become a liability—raising import costs and amplifying inflation. Japan imports more than 60 percent of its food on a caloric basis and roughly 80 percent of its energy, leaving the economy acutely vulnerable to currency depreciation. Political resistance remains a constraint. Prime Minister Sanae Takaichi, a staunch defender of Abenomics, has previously dismissed rate hikes as “stupid.” During a meeting with Ueda last November, she reportedly offered little more than a noncommittal “I see,” stopping short of endorsing the tightening path. Global markets are also on edge. Higher Japanese rates threaten to unwind an estimated ¥500 trillion ($3.26 trillion) in carry-trade positions. The risks were laid bare on Aug. 5, 2024, when a sudden reversal triggered synchronized sell-offs across markets from New York to Seoul. Still, doubts persist over how far tightening can go. “Japan’s growth turned negative in the third quarter of last year, real wage gains continue to disappoint, and corporate investment remains weak,” said Jung Yong-taek, a senior researcher at IBK Securities, adding that growth projections for 2026 have slipped back below 1 percent. “With the fiscal deficit near 5 percent and Prime Minister Takaichi pressing for renewed quantitative easing, we expect at most one additional rate hike this year,” Jung said. Nomura Securities echoed that view in its Japan Macro Outlook 2026, forecasting a pause in the BOJ’s tightening cycle as policymakers wait to see whether core inflation slips below the 2 percent target. Similar caution has been expressed by global asset managers including Morgan Stanley and BlackRock. China: Aggressive easing fails to awaken a somnolent economy China stands at the opposite extreme. Beijing has slashed its loan prime rate from 3.85 percent in 2021 to a record low of 3 percent by May last year, flooding the system with liquidity in hopes of reigniting growth. The strategy has succeeded—at least on the industrial front. Output surged, reinforcing China’s position as the world’s factory. In 2025, the country posted a record $1.2 trillion trade surplus. BYD overtook Tesla in electric vehicles, while ChangXin Memory Technologies emerged as the world’s fourth-largest memory-chip maker. Yet the benefits have largely bypassed households. Ultra-low rates accelerated the implosion of a property sector that holds roughly 70 percent of household wealth. As defaults mounted, home prices fell more than 20 percent. With savings offering minimal returns, households had little buffer against the collapse—deepening the real estate downturn rather than cushioning it. Consumption remains anaemic. Consumer inflation has stayed below 1 percent, reflecting persistent deflationary pressure. Retail sales growth has slowed to around 1 percent—an abrupt drop in an economy once accustomed to 8 percent expansion—casting doubt on Beijing’s 5 percent growth target. Producer prices tell a similar story, falling 1.9 percent in December as overcapacity fuels cutthroat price wars. Excess supply continues to overwhelm domestic demand, eroding margins and confidence. Beijing is widely expected to stay dovish. “After the Communist Party designated domestic demand-driven growth as a core priority for 2026 at December’s Central Economic Work Conference, accommodative policy is likely to persist,” said Park Soo-jin, a researcher at Mirae Asset Securities. Still, Park cautioned that the limits of monetary easing are becoming clear. China’s M2 money supply continues to decelerate despite rate cuts, underscoring waning transmission. Attention is now turning to the March “Lianghui” meetings, where authorities are expected to outline structural reforms beyond liquidity injections. South Korea and Taiwan: A shared pause, divergent realities South Korea and Taiwan—key pillars of the global semiconductor supply chain—have both opted for policy stasis. The Bank of Korea has held its benchmark rate at 2.5 percent since May 2025, while Taiwan’s central bank has kept rates at 2 percent for nearly two years. The similarity ends there. In Seoul, the pause reflects constraint. The won has weakened more than 4 percent against the dollar from its 2024 average, trading near 1,474 as of Friday. With a 1.25 percentage point yield gap with the United States, further cuts risk accelerating capital outflows and currency depreciation—especially as the yen regains strength. BOK Governor Rhee Chang-yong reinforced this hawkish bias on Thursday by removing references to “possible rate cuts” from the policy statement. While ruling out further easing, he also acknowledged that hikes cannot be an option due to South Korea’s 1,800 trillion won ($1.33 trillion) household debt burden. Property-related loans alone exceed 1,000 trillion won. A rate hike, Rhee warned, could destabilize housing rather than contain it—triggering defaults and a sharper downturn. Taiwan’s inaction, by contrast, reflects confidence. The economy is projected to grow 7.4 percent in 2025, according to the Central Bank of the Republic of China—far outpacing South Korea’s 1.8 percent forecast. Taiwan’s GDP per capita has overtaken Korea’s for the first time in more than two decades, while its $138 billion trade surplus is nearly double Seoul’s. The engine is semiconductors. TSMC, the linchpin of the global AI supply chain, is expected to post record revenues of $122 billion and operating profits of $60 billion. With exports driving growth, policymakers see little reason to risk tightening. Domestic conditions are equally benign. Inflation remains near the 2 percent target, and the Taiwan dollar has been stable around 31 to the U.S. dollar. Unlike South Korea, Taiwan can afford to wait. 2026-01-16 17:03:59

BOK stays pat and signals end to rate cuts amid prolonged won weakness SEOUL, January 15 (AJP) — The Bank of Korea’s decision to hold its policy rate at 2.5 percent on Thursday came with an unusual backdrop: a rare public intervention by the U.S. Treasury secretary and a detailed defense by a deputy governor, highlighting how Korean won's fragility has become central in both fiscal and monetary policy calculus. The central bank unanimously voted to keep the benchmark rate unchanged at its first rate-setting meeting of the year, extending a pause that has been in place since May last year and signaling an effective halt to the latest easing cycle. “I can easily say yes,” Bank of Korea Governor Rhee Chang-yong said at a press briefing after the monetary policy board meeting when asked whether the exchange rate had been the primary factor behind the decision. Rhee said the won’s excessive depreciation reflects a “disparity with fundamentals,” adding that authorities are reassessing the effectiveness of various measures taken since late last year to support the currency. He attributed roughly three-quarters of the won’s weakness to external factors — including a strong U.S. dollar, a weak Japanese yen and heightened geopolitical risks in regions such as Venezuela and Iran — with domestic factors accounting for the remaining quarter. A growing bias among investors toward overseas securities has also deepened short positioning on the won, amplifying downward pressure, he said. The currency’s slide to its weakest levels since past crisis episodes — including the global financial crisis, the Asian financial crisis and the post-martial law period in late 2024 — even prompted unusually direct commentary from Washington. U.S. Treasury Secretary Scott Bessent said in a post on X following a meeting with Deputy Prime Minister and Finance Minister Koo Yun-cheol that the won’s weakness was not aligned with South Korea’s economic fundamentals, a rare interventionist remark that briefly steadied market sentiment. The markets went on their ways – the KOSPI hitting new historic high of 4,797.55 after 1.58-percent gain. The dollar added 5.40 won to 1.471.9 won. Bond prices however crashed on hawkish tone. The three-year treasury yield surged 7.4 basis points to 3.070 percent, while the 10-year yield rose 5.4 basis points to 3.472 percent by midday. Policy bind between household debt and skewed economic recovery Too steep depreciation in the won that can fan imported inflation and capital flight builds rationale for higher rates. But the scale of household debt continues to constrain the central bank’s policy options. Household debt stands at around 2,000 trillion won ($1.36 trillion), a level widely viewed as prohibitive for any rate hike. A rate cut no longer can be an option since the Bank of Japan is expected to deliver its second consecutive rate hike later this month — a move that could intensify regional currency volatility and place additional pressure on the won. Reflecting the shift in stance, the BOK removed references to “the possibility of a rate cut” from its post-meeting statement. Unlike the divided vote seen in November, Thursday’s decision was unanimous, with all six board members agreeing to hold rates steady. Rhee said housing market imbalances and rising household debt remain key constraints on future policy decisions. He also pointed to a “K-shaped recovery” concentrated in semiconductors, alongside a declining potential growth rate, as structural pressures weighing on the broader economy. “We will determine future policy by comprehensively weighing the exchange rate, the monetary paths of the United States and Japan, and the state of the domestic economy,” Rhee said. The governor pushed back strongly against claims that loose liquidity conditions and modest rate cuts since the pandemic have structurally weakened the won. “During my tenure, at the very least, M2 growth has never shown an upward trend,” Rhee said. His four-year term ends in April. Deputy Governor Park Jong-woo reinforced that view, delivering a point-by-point rebuttal during the briefing — an unusually detailed defense at a rate-setting event. “The M2 growth rate has remained at a consistently low level since 2022 and even declined in November,” Park said. Addressing arguments that the won’s weakness stems from Korea’s higher M2-to-GDP ratio compared with the U.S. Park said the ratio has remained stable for several years. He cautioned against making simple numerical comparisons between Asian economies — which rely heavily on bank-intermediated finance — and the U.S. or eurozone, where capital markets play a more dominant role. 2026-01-15 16:19:26

BOK stays pat for eighth month as weak won and high debt constrain policy SEOUL, January 15 (AJP) - The Bank of Korea (BOK) kept its benchmark interest rate unchanged at 2.5 percent on Thursday, extending its policy pause to an eighth consecutive month as policymakers remain constrained by a weak currency, elevated household debt and divergent inflation pressures. At its first rate-setting meeting of 2026, the central bank decided to hold the base rate steady, unchanged since a 25-basis-point cut in May last year. The decision reflects what officials have described as a growing policy bind in a prolonged liquidity-rich environment. While the Korean won has remained near crisis-level weakness — raising concerns about imported inflation and eroding the relative appeal of Korean assets — the scale of domestic household debt continues to limit the central bank’s room to maneuver. Household debt stands at around 2,000 trillion won ($1.36 trillion), a level seen as prohibitive for any rate hike. At the same time, the BOK has little scope to resume a rate-cutting cycle, particularly as expectations build that the Bank of Japan may deliver a second consecutive rate hike later this month — a move that could exacerbate regional currency volatility and put additional pressure on the won. The won, which had drawn temporary support overnight from rare interventionist rhetoric by the U.S. Treasury Department echoing Seoul’s concerns, remained under pressure in early Seoul trading. The dollar was quoted at 1,467.5 won, up 1 won on the day as of the morning session. U.S. Treasury Secretary Scott Bessent said in a post on X following a meeting with Deputy Prime Minister and Finance Minister Koo Yun-cheol that the won’s weakness was not aligned with South Korea’s economic fundamentals, an unusually direct comment from Washington that briefly steadied market sentiment. 2026-01-15 09:52:23

Korea's M2 growth moderates as investors favor short-term returns SEOUL, January 14 (AJP) - South Korea’s broad money growth stalled in November under a revised definition of M2, reflecting both a statistical adjustment and a deeper shift in investor behavior toward short-term, high-return assets. According to data released Wednesday by the Bank of Korea (BOK), the M2 money supply stood at 4,057.5 trillion won ($2.77 trillion) in November 2025, little changed from the previous month and marking a second consecutive month of flat growth. The figure represents a slight decline from October’s 4,059.5 trillion won. Beginning in January, the BOK revised its M2 methodology in line with International Monetary Fund (IMF) standards, excluding beneficiary certificates — including exchange-traded fund (ETF) units — from the broad money total due to their high price volatility. Under the previous definition, November M2 would have amounted to 4,498.6 trillion won, showing a modest month-on-month increase. Even after accounting for the revision, the data point to heightened liquidity volatility, driven by investor preference for fast-turnover assets such as equities and short-term bonds. On a year-on-year basis, M2 rose 4.8 percent in November, slowing from October’s 5.2 percent increase. While moderating, Korea’s monetary expansion continues to outpace that of major reserve-currency economies, exceeding the United States’ 4.3 percent growth and Japan’s 1.8 percent. Liquidity levels also remain elevated relative to economic output. Data submitted by the BOK to Rep. Park Sung-hoon of the ruling People Power Party show Korea’s M2-to-GDP ratio at 153.8 percent — more than double the 71.4 percent recorded in the United States. The composition of money holdings highlights a growing bias toward liquidity. Financial bonds with maturities of less than two years increased by 4.2 trillion won, while marketable instruments rose by 2.5 trillion won, reflecting a shift away from longer-term financial products amid a buoyant securities market and rising demand for overseas equities. The trend has carried into the new year. Recent data released Tuesday show demand deposits at the country’s five major banks fell by about 27 trillion won from end-December levels, while investor deposits climbed to a record high exceeding 90 trillion won as of Jan. 8 — signaling an accelerating flow of funds from bank accounts into equity markets. By sector, corporations increased their M2 holdings by 11 trillion won in November, while “other financial institutions,” including brokerages and asset managers, added 8.7 trillion won. In contrast, money holdings by households and non-profit organizations declined by 12.3 trillion won, underscoring the rapid shift by individual investors toward riskier assets. 2026-01-14 16:48:28

Import prices extend gain on weak won, softer oil prices offset the rise Dec SEOUL, Jan. 14 (AJP) - South Korea’s import prices rose for a sixth consecutive month in December, though the pace of increase softened as falling global oil prices partially offset the impact of a weak won, data from the Bank of Korea (BOK) showed Wednesday — signaling lingering inflationary pressure likely to feed through to consumer prices with a lag. According to the BOK’s export-import price index (preliminary, in won terms; 2020=100), the import price index rose 0.7 percent from November to 142.39, marking a sharp deceleration from the 2.6 percent jump recorded the previous month. On a year-on-year basis, the index edged up 0.3 percent. Import prices have risen every month since July, marking the longest streak since May–October 2021. While the recent slowdown reflects easing energy costs, the sustained uptrend underscores the continued influence of the weak Korean won. Dubai crude oil prices fell 3.8 percent month on month and 15.3 percent on year to an average of $62.05 per barrel in December. The relief would have been greater if not for a weaker won. The U.S. dollar averaged 1,467.40 won in December, up 0.7 percent on month and 2.3 percent on year. “International oil prices declined, but the rise in the won-dollar exchange rate and higher prices for primary metal products pushed the import price index up,” said Lee Moon-hee, head of the BOK’s price statistics team. By category, intermediate goods prices rose 1.0 percent on month, driven by gains in primary metal products. Refined copper prices increased 8.7 percent, while other refined precious metals surged 13.6 percent. Mining products rose 0.2 percent, with copper ore climbing 10.0 percent and ammonia gaining 11.6 percent. Prices of "other" precious metal jumped 13.6 percent on month and as much as 89.5 percent on year, reflecting the spike in silver and gold prices. Raw material prices rose 0.1 percent overall. While crude oil prices declined, natural gas — including LNG — trended higher. On a year-on-year basis, however, LNG import prices fell 11.8 percent, broadly in line with the 13.3 percent annual decline in crude oil prices. Higher import prices tend to feed into consumer inflation after several months, keeping policymakers alert despite the recent moderation. Export prices hit record high as trade conditions improve Gains of exports prices benefited from the weak won and feverish demand for DRAM, helping to strengthen trade terms in Korea's favor. The export price index rose 1.1 percent on month to 140.93 in December, marking a sixth consecutive monthly increase and a record high. The rise, however, represented a significant slowdown from November’s 3.7 percent surge. DRAM export prices gained 5.2 percent on month and 57.5 percent on year amid dire shortage of mass-market memory due to capacity focus on high-performance memory by core producers Samsung Electronics and SK hynix. In trade terms, export prices posted annualized gains of 5.4 percent, while income terms surged 17.9 percent — comfortably supporting the country's trade surplus streak. The export volume index and export value index, which together underpin the export price index, rose to record highs of 141.88 and 162.25, respectively, indicating exports were sold in both larger volumes and at higher prices. Silver recorded the steepest increase among export items, surging 27.7 percent in December and rising 116.1 percent over the course of 2025 — the fastest growth among major metals — buoyed by its dual role as a safe-haven asset and a key industrial input for semiconductors and secondary batteries. Refined copper prices climbed 10.4 percent, reflecting strong demand tied to power grids and AI infrastructure. BOK officials noted that export volumes continued to rise, led by semiconductors and computer storage devices, with year-end shipment concentration amplifying the gains. Despite easing commodity prices, the BOK stressed that the exchange rate remains the decisive factor. In December, export prices measured in contract currencies rose just 0.4 percent from the previous month, while import prices were flat — confirming that most of the increase in won-based indices stemmed from currency effects rather than underlying price pressures. Looking ahead to January, Lee said both Dubai crude prices and the won-dollar exchange rate have so far declined from December averages, but cautioned that “uncertainty in both domestic and global conditions remains high.” 2026-01-14 10:53:09

Stock-bound cash hits record as KOSPI powers higher SEOUL, Jan. 13 (AJP) - South Korea’s benchmark KOSPI has extended its rally for a third straight week, brushing past the 4,700 level on Wednesday and moving closer to the long-anticipated 5,000 mark, buoyed by a record pile-up of investor cash on the sidelines. According to the Korea Financial Investment Association (KOFIA), investor deposits stood at 88.9 trillion won ($60.4 billion) as of Jan. 9, after briefly topping 92 trillion won a day earlier as retail investors rushed into the market. The KOSPI was the world’s best-performing major equity index in 2025, surging more than 75 percent, and the momentum has carried into the new year. The index gained 7.3 percent from the first trading session of 2026 through Jan. 12. At first glance, the swelling pool of idle cash and the index’s steep ascent point to overheating. A closer look, however, suggests leverage remains largely contained. Consignee unpaid accounts — funds used for credit-based stock purchases that have yet to be settled — totaled 1.1 trillion won as of Jan. 9, accounting for just 1.2 percent of investor deposits. Defaults within those credit positions stood at 11.8 billion won, or 1.1 percent, indicating that the rally has not yet morphed into unchecked speculative borrowing. Liquidity conditions are also far stronger than during past market shocks. When the yen-carry trade unwound on Aug. 5, 2024, triggering a “Black Monday” sell-off, investor deposits hovered near 50 trillion won — roughly 30 to 40 trillion won below current levels. In theory, today’s larger cash buffer offers greater shock-absorbing capacity. Still, market veterans warn against treating deposit figures as an ironclad safety net. “Investor deposits are a lagging indicator, not a leading one, and they can flow out to other asset classes at any moment,” said Kim Hak-kyun, head of research at Shinyoung Securities. Unless idle cash is converted into actual transaction volume, he cautioned, headline liquidity numbers can offer a false sense of security. History backs the caution. In the second half of 2021, deposits stayed above 70 trillion won, yet the KOSPI slid from around 3,300 in June to below 2,900 by November as fears of aggressive U.S. Federal Reserve tightening rattled markets. Currency weakness adds another layer of risk. During the volatility following Russia’s invasion of Ukraine in 2022, the won-dollar exchange rate spiked to 1,300, triggering a flight of deposits into perceived safe-haven assets and accelerating equity losses. With the won weakening past 1,474 per dollar as of 3:30 p.m. Tuesday, some analysts argue domestic liquidity could again be overpowered by global macro forces. “If an excessively weak won persists beyond a strong-dollar cycle, it could undermine confidence in the economy itself and erode the appeal of Korean equities,” said Oh Gun-young, head of Shinhan Bank’s wealth management division. Structural factors amplify the concern. “Because South Korea relies heavily on imported energy and raw materials, a weak won directly raises production costs and squeezes corporate margins,” said Lee Seung-hoon, a researcher at Meritz Securities, adding that currency depreciation ultimately undercuts industrial competitiveness regardless of how much cash is waiting on the sidelines. 2026-01-13 17:56:14

NH chairman steps down from key posts as top executives resign amid management scandal SEOUL, January 13 (AJP) - The chief of South Korea's state-invested financial group NH stepped down from key posts following mass resignation of C-suite over corruption allegations. Kang Ho-dong, chairman of National Agricultural Cooperative Federation (NH), on Tuesday announced his resignation from concurrent leadership positions at a major farming daily and a charitable foundation, following a government audit that uncovered widespread management malpractice. The move comes as half of the group’s top executive board members stepped down in a sweeping organizational overhaul aimed at addressing public outcry over excessive perks and lack of transparency. During a public apology at the NH headquarters in Seoul, Kang expressed deep regret over the findings of a special audit by the Ministry of Agriculture, Food and Rural Affairs. "I heavily recognize the stern rebukes from the public and farmers following the ministry's announcement on Jan. 8," Kang said, pledging to relinquish his roles as chairman of the Nongmin Shinmun and head of the NongHyup Foundation to clearly define the boundaries of the group chairman's authority. The leadership shakeup will see the departure of half of NH’s representative-level executives, including the vice president, the head of mutual finance, and the president of the Nongmin Shinmun. Kang stated that he would delegate general management and personnel matters to business-specific CEOs, focusing his efforts on the core mission of advancing agriculture and rural development. Addressing specific allegations of power abuse, Kang apologized for exceeding the $250 daily limit for hotel expenses during overseas business trips and promised to return the overspent funds in full. The ministry’s audit earlier revealed that Kang had exceeded accommodation price caps during all five of his international trips and received more than 300 million won ($206,000) in additional annual salary by concurrently serving as the head of the farming newspaper. To accelerate structural changes, NH will establish a "NongHyup Reform Committee" composed of experts from the legal, academic, and agricultural sectors. The committee is tasked with overhauling the chairman election process and governance structures while collaborating with the government’s own reform task force to ensure greater transparency in cooperative management. The fallout from the audit has also intensified legal risks for the group. The Seoul Metropolitan Police Agency’s financial crime unit is currently investigating allegations that NH used public funds to pay for employees' private legal fees and probing potential breach of trust within the NongHyup Foundation. The Ministry of Agriculture plans to finalize its audit results by March after reviewing 65 confirmed cases of malpractice and evaluating further legal action for 38 additional cases. As of 2024, the unlisted NH commands a formidable presence in the financial landscape with total assets reaching 711 trillion won ($487 billion), a figure that solidifies its position as the fourth-largest financial group in South Korea - comprising 532 trillion won from its financial holding arm, 166 trillion won from the federation, and 13 trillion won from its economic business wing. NH also stands as one of top three cooperative titan on a global scale alongside Japan’s Zen-Noh and the U.S.’ Cenex Harvest States (CHS). 2026-01-13 13:29:47

Won edges toward 1,470 on overseas stock craze and strong dollar SEOUL, Jan. 12 (AJP) -South Korea’s won has weakened for eight consecutive sessions to flirt with the 1,470 level, erasing year-end gains made from heavy central bank intervention and stoking concerns for entrenched fragility that can build up inflationary pressures across the economy. The won closed at 1,468.4 against the dollar in Seoul on Monday, down 10.8 won from the previous session. After a volatile day that saw the currency start at 1,461.3 and briefly strengthen to 1,457.0, a late-afternoon surge pushed it to an intraday low of 1,470—the lowest level since late December and share reversal from 1,429.8 on December 29. This latest depreciation is particularly painful for policymakers, as it follows a significant sacrifice of the nation’s foreign exchange reserves. Reserves fell by $2.6 billion in late December, marking the only decline among the world’s top 10 reserve holders that month, according to the Bank of Korea. The drop represents the largest monthly contraction since the peak of the Asian Financial Crisis in December 1997 - $4 billion. The central bank has formally acknowledged that its active market interventions played a decisive role in the erosion of the nation’s foreign exchange buffers. Despite this intervention, the won's performance has lagged behind its regional peers who chose to bolster their reserves during the same period. Driving this latest leg of depreciation is a record-breaking exodus of domestic capital. Korea Securities Depository data shows that individual investors net purchased $1.94 billion in U.S. stocks during the first nine days of the year, the largest volume for that period since records began in 2011. Many retail investors, sensing that the won-dollar rate had been artificially suppressed by government intervention, moved aggressively to convert cash into dollar-denominated assets. Meanwhile, offshore investors exacerbated the pressure by offloading 351 billion won in local equities on Monday. "The sharp drop in the exchange rate late last year, triggered by government liquidity measures and the National Pension Service’s currency hedging strategy, prompted a wave of dip-buying from real-demand investors," Moon Da-woon, a researcher at Korea Investment & Securities, said, noting that this bottom-fishing trend is effectively capping any potential appreciation of the won. External factors are equally punishing for Seoul. The dollar index (DXY) has risen for six straight sessions, hovering near the 99 level as geopolitical tensions drive a flight to safety. This dollar strength has been compounded by a weakening yen, which hit 158.2 per dollar — a yearly low — amid fears of fiscal instability ahead of a potential snap election in Japan. Experts warn that a weak-won environment could become a permanent fixture, threatening to pass through to consumer prices via higher import costs and squeezing corporate margins on raw materials. "Geopolitical risks centered on the U.S. are escalating early this year," Oh Jae-young, a researcher at KB Securities, said, pointing to looming legal rulings on Trump-era tariffs as a potential source of even greater market volatility. The currency's weakness is also tying the hands of the Bank of Korea. With the won under pressure and housing prices remaining elevated in Seoul, the consensus among analysts is that the Monetary Policy Board will leave interest rates unchanged for a fifth consecutive time this week. "While the fair value for the won is estimated around 1,300 based on the real effective exchange rate, structural supply-demand factors—including the expansion of overseas investment by 'Seohak Ants'—will likely keep the rate in the mid-1,400s for the time being," Yoon Yeo-sam, a researcher at Meritz Securities, said, predicting that high exchange rates will push consumer inflation to 2.3 percent this year, overshooting the central bank's 2.1 percent target. 2026-01-12 17:50:40

Red flags rise as leveraged stock investment hits record highs in Korea SEOUL, January 12 (AJP) - As an AI-driven frenzy continues to power record rallies in Seoul and on Wall Street, leveraged stock investment in South Korea has surged to historic highs, amplifying financial vulnerabilities in an economy where household debt already exceeds gross domestic product. The benchmark KOSPI continued to rewrite records this week, climbing 0.84% to 4,624.79 - less than a week after breaking through 4,500. The index has rallied almost uninterrupted since mid-December, rising from below 4,000 on Dec. 18. The roughly 16 percent gain over that period extends a broader rally of about 75 percent since the start of 2025. If last year’s rally was driven primarily by SK hynix, this year’s momentum has been led by Samsung Electronics. The stock has set successive record highs, briefly topping the 140,000-won level during morning trading. The blistering equity surge — unfolding against a backdrop of sluggish economic indicators — is fueling concern rather than relief among policymakers and market watchers. According to data from the Korea Financial Investment Association (KOFIA), margin trading balances reached a record 28 trillion won ($19.2 billion) as of Jan. 8, marking a more than 30 percent increase from a year earlier. Margin debt, which allows investors to borrow against existing holdings to amplify returns, has accelerated sharply over the past three years. Growth stood near 10 percent in 2023, rose to about 20 percent in 2024 following the U.S. Federal Reserve’s aggressive rate cuts, and has surged further this year amid abundant global liquidity. Risk appetite has been especially concentrated in blue-chip stocks. Samsung Electronics alone accounted for nearly 2 trillion won in margin debt as of early January. Analysts warn that such “borrowed-money” investment is highly vulnerable to external shocks — most notably a potential further rate hike by the Bank of Japan (BOJ). BOJ Governor Kazuo Ueda signaled a continued hawkish stance at a New Year’s press conference on Jan. 5, indicating that the central bank would raise policy rates gradually from the current 0.75 percent as real interest rates remain deeply negative. The BOJ’s policy meeting on Jan. 23, followed closely by the U.S. Federal Open Market Committee (FOMC) meeting, is expected to serve as a key test for the direction of the yen-carry trade. While Japan’s December rate hike was largely priced in, analysts caution that an additional move could push the yen beyond key psychological thresholds against the dollar. “The ‘Black Monday’ crash in August 2024, when the Korean market plunged nearly 9 percent, was triggered the moment the yen hit 162 per dollar,” said Cho Yong-gu, a researcher at Shinyoung Securities. “Investors should closely monitor the yen-dollar exchange rate as the Fed weighs whether to hold or cut rates.” Kwon Ah-min, a researcher at NH Investment & Securities, echoed the warning, noting that given the severe damage caused by the unwinding of yen-carry trades two years ago, market participants must watch closely where global capital flows once the yen begins to strengthen. During the previous unwinding episode on Aug. 5, 2024, South Korean stocks suffered an 8.77 percent plunge, triggering widespread margin calls and heavy losses among retail investors. Samsung Electronics fell more than 10 percent, while SK hynix slid over 9 percent. With leverage now at even higher levels, a similar shock could pose systemic risks to the broader economy. Rising debt yields are adding further strain to South Korea’s households, whose total debt surpassed a record 1,800 trillion won as of the third quarter last year. Data submitted by the Bank of Korea to the National Assembly show that average debt per borrower is approaching 100 million won, underscoring the fragility of private-sector balance sheets. Global investment banks are also raising cautionary flags. Goldman Sachs warned in a late-December report that a BOJ rate hike on Jan. 23 could become a “tipping point” for the yen-carry trade. Morgan Stanley said that if Japan’s real interest rates turn positive, a large-scale repatriation of capital to Japan could trigger a global market sell-off. Identifying early warning signals will be critical in the current environment. “When the yen strengthens by more than 1 percent in a single day, or when bond yields and credit default swap premiums spike beyond normal ranges, it should be seen as a sign that yen-carry unwinding has begun,” said Kim Young-ik, a former professor at Sogang University. 2026-01-12 16:48:10

BOK likely to sit tight on rates through H1 amid FX and housing volatility SEOUL, January 09 (AJP) - The Bank of Korea is widely expected to keep its benchmark interest rate unchanged in the early months of 2026, as policy room remains constrained by persistent currency weakness, elevated housing prices and uncertainty over the durability of growth driven by an unprecedented chip boom. The central bank will hold its first rate-setting meeting of the year on Jan. 15, launching its annual cycle of eight policy reviews. Since reducing the number of monetary policy meetings from 12 to eight in 2017, the BOK has adopted longer intervals to allow for more comprehensive assessments of economic conditions. The benchmark rate has been on hold since May 2025, when the BOK cut it to 2.50 percent. Any additional easing would risk widening the interest-rate gap with the U.S. federal funds rate, currently in the 3.5–3.75 percent range. A wider differential typically puts downward pressure on the won as capital flows toward higher-yielding dollar assets. The policy calculus has grown more complex following the Bank of Japan’s recent move away from its long-standing zero-interest-rate stance, a shift that could further accelerate capital outflows from South Korea. The BOK’s maneuvering room is constrained both externally and internally. Domestically, the monetary policy board has historically favored caution during the final months of a governor’s term. Rhee Chang-yong’s four-year term ends in April, and it remains unclear whether he will be reappointed. Household debt remains another major limiting factor. As of the third quarter of 2025, household liabilities stood at 1,968 trillion won ($1.35 trillion), with more than 1,000 trillion won tied to real estate through mortgages and jeonse loans — a unique local system in which tenants provide large lump-sum deposits. A rate hike under these conditions could sharply strain debt-servicing capacity and risk destabilizing the property market. Against this backdrop, expectations for a hold are overwhelming. A survey conducted by Aju Business Daily on Thursday showed all 12 bond and macroeconomic strategists polled at major brokerages forecasting that the BOK will keep rates unchanged in January. While views diverged on the timing of any subsequent move, respondents broadly agreed that the status quo would persist at least through the first half of the year. “With corporations reporting robust earnings, there is little immediate pressure for further rate cuts, while it is also unclear whether a hike would meaningfully stabilize either housing prices or the exchange rate,” said Park Sang-hyun, a researcher at iM Securities. Cho Yong-gu of Shinyoung Securities echoed that view, noting that although growth momentum has remained resilient since November, volatility in the won and persistent overheating in the Seoul metropolitan housing market argue for policy caution. Analysts say future decisions will hinge largely on upcoming growth data. “If strong growth momentum carries through the second quarter, rates could remain on hold or even edge higher toward year-end,” said Woo Hye-young of LS Securities. “But signs of a slowdown in the second half would revive the case for renewed easing.” The housing market remains a critical wildcard. “Home prices, particularly in the metropolitan area, are likely to continue rising this year,” said Paik Yoon-min of Kyobo Securities, adding that a clear cooling of property prices would be a prerequisite for any shift in monetary stance. For now, neither the currency nor real estate shows signs of stabilizing. The won stood at 1,458 per dollar as of 3:30 p.m. Friday, down 5 won on the day. Despite foreign-exchange authorities having spent more than $2.6 billion in reserves on market intervention, the impact has been limited. Seoul apartment prices, meanwhile, climbed 8.71 percent in 2025. With household lending at commercial banks continuing to rise in early January, upward pressure on asset prices appears far from easing. 2026-01-09 17:13:57