Journalist
Seo Hye Seung, Kim Yeon-jae
duswogmlwo77@ajupress.com
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Consumer prices hit 26-month high as fuel prices soar SEOUL, June 2 (AJP) - South Korea's consumer prices rose 3.1 percent in May from a year earlier, the Ministry of Statistics and Data said on Tuesday. Consumer prices, which serve as a key gauge of inflation, rose above 3 percent for the first time in 26 months since February 2024, fueled by sharp increases in petroleum and industrial product prices. An index measuring the prices of daily necessities also rose to 3.3 percent, the highest level since March 2024, suggesting that households continue to feel the pressure of rising prices. Petroleum products were a major driver of inflation, with prices rising 24.2 percent year-on-year. Diesel recorded the largest increase at 33.3 percent, while gasoline prices rose 23.1 percent. Costs in the service sector also rose 2.8 percent from a year earlier. Prices of agricultural and fishery products also climbed 2.2 percent as hot weather constrained supply. The core inflation measure used by the Organization for Economic Cooperation and Development (OECD), which excludes food and energy, rose 2.5 percent, marking its highest level since February 2024. 2026-06-02 10:44:31 -
South Korean bond yields surge on hawkish BOK remarks amid lingering Middle East conflict SEOUL, June 1 (AJP) - South Korean government bond yields surged following a double blow of U.S. President Donald Trump's rejection of a draft peace memorandum of understanding with Iran and hawkish remarks from the Bank of Korea (BOK) governor. The local currency, in contrast, erased early losses to close slightly higher as a clearer path toward interest rate hikes cushioned the market. The three-year government bond yield rose 5.9 basis points to 3.790 percent, its highest level since November 2023, while the 10-year yield jumped 10.6 basis points to 4.174 percent, returning to levels last seen in late May. Earlier in the morning, BOK Governor Shin Hyun-song emphasized during a policy dialogue at the BOK International Conference that South Korea's economic growth momentum remains robust, expanding the central bank's room to respond to inflation. The comments triggered a massive sell-off in the fixed-income market as investors interpreted the remarks as a clear signal for upcoming rate hikes. "The growth is very strong here in Korea," Shin said. "First-quarter growth is super strong, especially when measured in terms of gross domestic income rather than gross domestic product." "It poses fewer impediments to adjusting monetary policy in light of inflation," Shin said, adding that it gives the central bank a lot more leeway to conduct monetary policy. The upward trajectory of bond yields was already anticipated, as optimism for peace dimmed after President Trump announced on Sunday that he would not sign the draft peace memorandum with Iran. South Korea, which relies on the Strait of Hormuz for nearly 70 percent of its total crude oil imports, suffered a heavier blow than other major economies; this geopolitical friction, compounded by the BOK governor's hawkish rhetoric, sent bond prices tumbling. Conversely, the local currency showed resilient strength, defying expectations of a synchronized drop. The won opened down 0.8 won at 1,508.8 won per dollar and breached the 1,510 mark intraday, but steadily recovered after the conclusion of the conference's morning session to close up 3.6 won at 1,504.3 won per dollar. Rate hike expectations following Shin's remarks were fully priced into the market, effectively offsetting the headwinds stemming from the uncertainties in the Strait of Hormuz. "The central bank's tightening stance appears to be supporting the local currency," a foreign exchange market official said on the condition of anonymity. 2026-06-01 17:34:47 -
South Korea to launch 24-hour FX trading amid concerns over won stability SEOUL, June 1 (AJP) - As authorities prepare to open South Korea's foreign exchange market full-time on weekdays, expectations are growing that the move could partially ease exchange rate volatility. Experts, however, say longer trading hours alone cannot stabilize the won unless trading volume and global trust in the currency also improve. That came after revisions to the foreign exchange market code of conduct were approved last Friday, paving the way for expanded U.S. dollar–won trading hours from July 6. The current trading hours of 9:00 a.m. to 2:00 a.m. the following day will expand to run from Monday at 7:00 a.m. to Saturday at 7:00 a.m. New York time. During daylight saving time, trading will run from Monday at 6:00 a.m. to Saturday at 6:00 a.m., effectively allowing weekday round-the-clock trading. Foreign exchange authorities also plan to revise related systems, including the methodology for calculating the daily baseline brokerage rate. The current baseline rate is calculated from transactions between 9:00 a.m. and 3:30 p.m., but the full-day trading structure requires changes to intra-day posted rates and the calculation of opening, high and low rates. The measure extends the government's broader roadmap to improve the structure of South Korea’s foreign exchange market. In July last year, authorities extended the Seoul market’s trading hours to 9:00 a.m. to 2:00 a.m. the following day — 10 hours and 30 minutes longer than the previous 9:00 a.m. to 3:30 p.m. session — before moving toward a full 24-hour system covering New York trading hours. Market participants expect the longer hours to reduce "trading vacuums" and ease exchange rate volatility. Previously, major risk events such as U.S. employment data or Federal Reserve remarks were often absorbed all at once at the next morning's opening, creating sharp gap risks. Kang Hyun-ju, a senior research fellow at the Korea Capital Market Institute, said volatility in the overnight onshore market did not rise significantly after the initial extension of trading hours in July 2024, compared with the offshore non-deliverable forward market in New York. "The stabilization did not occur simply because the hours during which the market was closed overnight were reduced," Kang noted. "Instead, the extension allowed global overnight information to be continuously absorbed into the exchange rate, effectively minimizing the 'gap risk' of sharp fluctuations the following morning," he explained. The shift is also expected to improve currency risk management for investors and companies. Foreign investors will be able to convert won regardless of Korean standard time, while domestic retail investors trading overseas equities can respond to U.S. market moves in real time. Import-export firms can also execute late-night settlements and hedging transactions more flexibly. However, around-the-clock access does not automatically guarantee lower volatility. Experts warn that if actual transaction volume remains thin during dawn hours, a "liquidity vacuum" could emerge and cause the exchange rate to swing even on small orders. "While this is a necessary direction from the perspective of internationalizing the won, managing the exchange rate will inevitably become more difficult than in the past," said Kim Jung-sik, a professor emeritus of economics at Yonsei University. "Countries like Japan can utilize 24-hour trading as a buffer because their currencies are already fully internationalized, but South Korea does not yet possess that cushion." The won's limited role as a global reserve currency remains a structural hurdle. Even if offshore access improves, insufficient commercial and hedging demand during overnight hours could leave the exchange rate overly sensitive to offshore orders or algorithmic trading. The limitations could become clearer during major external shocks. If geopolitical disruptions such as a blockade of the Strait of Hormuz push up oil prices, strengthen the dollar and fuel risk aversion, the dollar-won exchange rate could still move sharply even under a 24-hour system. The dollar-won exchange rate weakened 1.4 percent from 1,471.00 won per dollar on February 27 to a monthly average of 1,491.39 won in May. On a monthly average basis, this marked the third-highest level in history, trailing only January and February of 1998 immediately after the Asian financial crisis. "If the blockade of the Strait of Hormuz extends past June, crude oil prices will climb to at least 130 dollars per barrel," said Park Sang-hyun, a research fellow at iM Securities. "In a worst-case scenario, the exchange rate could plunge to the 1,550 to 1,600 won level," he projected. The burden on financial authorities will also increase. Under the previous structure, authorities focused mainly on Seoul’s regular trading hours, but the new system will require continuous monitoring through the European and New York sessions into the Korean dawn. Experts and market insiders say the long-term focus should be on expanding infrastructure and broadening the underlying user base of the won. "The transition to 24-hour trading is not a policy designed to directly lower the exchange rate, but rather an infrastructural overhaul to ensure uninterrupted price formation," said an foreign exchange market official, on condition of anonymity. "For the system to stabilize, we must expand the base of domestic and foreign participants so that sufficient bid-ask spreads are maintained even at dawn, while simultaneously deepening the derivatives and hedging markets." On Monday, the exchange rate briefly dipped below 1,510 won per dollar after U.S. President Donald Trump rejected a proposed peace accord, but ultimately edged up 3.6 won to close at 1,504.3 won per dollar. 2026-06-01 16:40:01 -
BOK's two-day conference opens with warnings over stablecoins and digital money shift SEOUL, June 01 (AJP) - The spread of stablecoins could reinforce the dominance of the U.S. dollar and weaken monetary sovereignty in other economies, European Central Bank executive board member Isabel Schnabel warned on Monday at the Bank of Korea's annual conference in Seoul on Monday. At the two-day conference held under the theme "Central Banks and the Future of Money" at the central bank's annex hall, Schnabel said in her keynote speech that the rapid spread of stablecoins could strengthen the global role of the U.S. dollar at the expense of other currencies. Her warning was followed by opening remarks from BOK Governor Shin Hyun-song, who stressed that money is not simply a technological tool but a social institution built on trust. "Currency is not merely about technology, but about how our society coordinates economic activities," Shin said, adding that the central question for the future monetary system is how trust in money can be preserved. Stablecoins, which are digital tokens designed to maintain a stable value by being pegged to assets such as fiat currencies, still account for a relatively small share of global financial assets. But their use has grown quickly, and most stablecoins currently in circulation are pegged to the U.S. dollar. "The dollar's dominance would be reinforced, not necessarily owing to stronger economic fundamentals but due to network effects, scale and first-mover advantages," Schnabel said. She warned that the trend could have serious implications for countries with weaker monetary credibility, where households and firms may increasingly shift into dollar-based stablecoins. Such a shift could make it harder for domestic central banks to transmit monetary policy to the real economy, weakening the role of local currencies as policy anchors. Schnabel said the risk is not limited to emerging markets. Even regions with strong monetary credibility, including the euro area, could face long-term consequences if dollar-based stablecoins expand the use of dollar invoicing and global dollar liquidity holdings. From a European perspective, she warned, such a trend could restrict the euro's role in tokenized finance and in the international monetary system. The first day of the conference will focus on financial stability, digital currency and central bank communication, with presentations by Tobias Adrian of the International Monetary Fund, Markus Brunnermeier of Princeton University and Michael Weber of Purdue University and ESMT Berlin. The second day will include a special lecture by Robert Townsend of the Massachusetts Institute of Technology, sessions on the history of central banking and artificial intelligence, and a final panel discussion on "The Role of Central Banks in a New Digital Economy." The BOK is livestreaming the opening session and the second-day panel discussion on its official YouTube channel. 2026-06-01 13:50:08 -
Stock leverage, not typical housing as BOK's policy headache SEOUL, May 29 (AJP) — More than 60 trillion won ($39.9 billion) of leverage tied to South Korea’s stock market frenzy is emerging as a risk factor for both equities and the foreign-exchange market after the central bank all but signaled at least one rate hike in the second half. “While demand curves typically slope downward, heavy debt-fueled investment could reverse that pattern, as forced liquidations are triggered and funds are withdrawn when prices decline,” Bank of Korea Governor Shin Hyun-song said Thursday after the central bank left its benchmark rate unchanged at 2.50 percent for a full year. For ordinary investors, the message was straightforward: excessive leverage can accelerate capital flight and magnify market losses when sentiment turns. The vicious cycle created by debt-financed investing can also hurt investors who have committed only their own funds. Shin’s remarks suggested that leveraged trading is no longer merely a retail-investor issue but a potential complication for monetary policy and financial stability. The Bank of Korea’s latest dot plot, which contains three six-month rate projections from each board member, showed 10 dots at 3.00 percent, seven at 2.75 percent and two at 3.25 percent. Only two projected the benchmark rate remaining at 2.50 percent. The distribution leaves room for as much as 75 basis points of additional tightening in the second half, a prospect that coincides with record borrowing in the domestic stock market. As of Wednesday, outstanding margin loans had surpassed 36 trillion won, setting a new record. Stock-backed loans, in which investors borrow against existing holdings, also exceeded 25 trillion won, bringing retail investors’ total stock market-linked debt exposure to roughly 61 trillion won. At the same time, borrowing costs have climbed sharply. Maximum margin-loan rates at major brokerages are already in the mid-to-high 9 percent range, with Samsung Securities charging as much as 9.6 percent and Mirae Asset Securities up to 9.5 percent. Those elevated rates could weigh on investor sentiment and erode borrowers’ ability to service interest payments even before stock prices begin falling. Early warning signs are already appearing in the short-term credit market, where forced liquidations have been rising in the three-day settlement segment. Over the past six months, the ratio of forced liquidations to unpaid balances exceeded 2 percent on 20 trading days. The figure typically hovers around 1 percent in stable market conditions, but its six-month average has risen to 1.45 percent and spiked to 7.6 percent on May 20. Market participants worry that stress in the short-term credit segment could spill over into the broader margin-loan and stock-backed lending market. If share prices fall, collateral values would decline, potentially triggering margin calls and forced selling by investors unable to meet collateral requirements. Analysts also warn that debt-fueled positions could amplify volatility. “Margin trading volumes are expanding too rapidly at a time when stock market volatility is also rising, pushing daily forced liquidations above 10 billion won,” said Lee Hyo-seop, a senior research fellow at the Korea Capital Market Institute. “We need to monitor whether forced liquidations at one brokerage could spread to other firms and further increase volatility,” Lee said, warning that retail losses could evolve into broader market selling pressure. The risk is heightened by the narrow nature of the KOSPI rally. Much of the index’s recent advance has been concentrated in a handful of semiconductor heavyweights, including Samsung Electronics and SK hynix, creating what some analysts describe as an index illusion that leaves leveraged investors more vulnerable if leadership stocks retreat. The BOK’s tightening signal also carries implications for the foreign-exchange market. In theory, higher domestic rates should support the won by narrowing interest-rate differentials with major economies. Shin separately addressed currency markets, warning against one-sided moves in the won. “We will respond firmly to excessive one-sided movements in the exchange rate,” he said. “We will not tolerate herd behavior in the currency market. We have the tools, the will and various ways to respond.” Yet if monetary tightening coincides with a sharp equity correction, the currency effect could become more complicated. Even as domestic rates rise, foreign investors may cut risk exposure, sell Korean stocks and increase demand for dollars. That dynamic was visible following the BOK’s hawkish signal on May 28. In the bond market, the three-year government bond yield rose 5.5 basis points to 3.766 percent, while the 10-year yield climbed 4.5 basis points to 4.147 percent. Stocks also came under pressure. The KOSPI tumbled more than 4 percent intraday, briefly testing the 8,000 threshold, while the won weakened to close at 1,505.80 per dollar. Despite the governor’s hawkish rhetoric, markets continued to move in the opposite direction on Friday. The won lost another 5.1 won to close at 1,507.9 per dollar as foreign investors dumped more than 1 trillion won worth of KOSPI shares amid a stronger U.S. Dollar Index fueled by expectations of a U.S.-Iran peace deal. For that reason, investors increasingly view Shin’s message as more than a warning about retail leverage. It underscored how rising stock market debt has become a policy burden for the central bank, as tighter monetary policy, narrow market leadership and exchange-rate volatility can reinforce one another during a correction. Shin signaled that the BOK would take those risks into account when determining the pace of tightening. “The timing and pace of interest rate hikes will be decided based on incoming data, as we assess the expansion of inflationary pressures, the path of economic recovery and broader financial stability conditions,” he said. 2026-05-29 17:33:37 -
Korea's tax revenue brims from strong stock and corporate earnings SEOUL, May 29 (AJP) - South Korea’s national tax revenue expanded sharply during the first four months of this year on track for excess revenue of 25.2 trillion won ($17 billion) this year on blistering stock market rally and corporate earnings, the government said Friday. According to the Ministry of Economy and Finance on Friday, cumulative national tax revenue from January to April reached 164.1 trillion won ($109.7 billion), adding 21.9 trillion won from the same period last year. The tax collection progress rate came to 39.5 percent against budgeting, faster than 38.0 percent a year earlier. For the single month of April, national tax revenue stood at 55.2 trillion won, climbing 6.3 trillion won on year. The finance ministry cited expansions in securities transaction taxes, corporate income taxes, and personal income taxes as the primary catalysts for the monthly gain. Securities transaction tax collections jumped by 1.1 trillion won, fueled by expanding transaction turnover and higher tax rates. According to the finance ministry, the trading volume of listed shares in March soared to 1,449.4 trillion won, nearly quadrupling from the 357.1 trillion won recorded in the same month last year. Since the beginning of the year, the domestic equity market has experienced a massive influx of retail capital, with trading activity concentrating heavily around semiconductor and artificial intelligence (AI) sectors. Market observers noted that the relentless upward momentum of mega-cap tech stocks, such as Samsung Electronics and SK hynix, combined with an investment frenzy into single-stock leveraged exchange-traded funds (ETFs) and exchange-traded notes (ETNs), further amplified the trading surge. Corporate tax collections also advanced by 2.2 trillion won, reflecting a sharp turnaround in corporate profitability. The finance ministry explained that the annual operating profits of companies listed on the benchmark KOSPI rose 29.5 percent on an individual basis and 25.4 percent on a consolidated basis last year. Personal income taxes rose by 1.3 trillion won, driven by expanded corporate bonus payouts and a rise in capital gains from stock liquidations. Value-added tax (VAT) collections also ticked up by 300 billion won, supported by an expansion in import values. By item, cumulative figures for the January-April period showed that personal income taxes expanded by 5.9 trillion won year-on-year. Over the same four-month span, securities transaction taxes and corporate taxes increased by 3.1 trillion won and 3.2 trillion won each. 2026-05-29 15:16:51 -
NPS delivers 4.4% return Q1 to outperform others on 22% return from Korean equities SEOUL, May 29 (AJP) — South Korea's National Pension Service (NPS) posted a solid 4.42 percent return in the first quarter thanks to stellar performance of local shares despite the outbreak of the U.S.-Iran war. NPS, one of the world's largest institutional investors with assets under management swelling to 1,526 trillion won ($1.14 trillion), said Friday its assets increased by 68 trillion won from the end of last year, with domestic stocks returning 21.67 percent and accounting for the bulk of investment gains. The performance report came less than 24 hours after the National Pension Fund Management Committee, chaired by Health and Welfare Minister Jeong Eun-kyeong, approved a new five-year asset allocation plan raising the target weighting of domestic equities to 20.8 percent from 14.9 percent. At Thursday's meeting, the Fund Management Committee also approved a temporary expansion on domestic-equity strategic asset allocation (SAA) tolerance band. The fund's local exposure is said to have neared 30 percent despite the cap based on the tolerance band. Although the upper and lower limits are not publicly disclosed, the hike of the official ceiling would ease the rebalancing pressure while the stock market remains on bullish run. At recent market highs, analysts estimated that as much as 177 trillion won worth of domestic equities could have faced rebalancing pressure under the previous allocation framework. "Recent domestic stock markets have continued their upward momentum, with the KOSPI closing above 8,000 for the first time," Jeong said at Thursday's meeting. "We will seek to enhance the fund's long-term profitability and stability while also taking into account its impact on financial markets." According to the NPS, domestic equities generated the strongest returns among major asset classes in the January-March period, rising 21.67 percent. Overseas stocks slipped 0.11 percent, while domestic bonds lost 2.03 percent. Overseas bonds gained 4.98 percent and alternative investments returned 5.27 percent. The fund said the outbreak of the U.S.-Iran conflict on Feb. 28 weakened investor sentiment and interrupted a powerful rally in semiconductor-related shares. Nevertheless, domestic equities maintained double-digit gains and remained the primary driver of overall portfolio performance. Overseas stocks were weighed down by growing uncertainty surrounding global markets, while rising oil prices and inflation concerns pushed bond yields higher, hurting domestic fixed-income holdings. Overseas bonds benefited from gains in the won-dollar exchange rate. NPS Chairman Kim Sung-joo said first-quarter returns had retreated from 10.26 percent recorded at the end of February as the Middle East conflict rattled financial markets, but have since recovered. "The fund has regained momentum and continues to deliver solid results," Kim said. "As a long-term investor responsible for the retirement security of the Korean people, we will maintain disciplined investment principles and rigorous risk management regardless of market conditions." The stronger-than-expected performance provides fresh context for Thursday's politically sensitive decision to increase the pension fund's domestic stock allocation. Under the 2027~2031 medium-term asset allocation plan approved by the committee, domestic equities will account for 20.8 percent of the portfolio, while overseas equities will represent 34.7 percent. Domestic bonds will make up 23.1 percent, overseas bonds 7.4 percent and alternative investments 14.0 percent. As of March, local stocks accounted for just over 21 percent of assets and generated more than one-fifth in returns during the quarter. 2026-05-29 14:45:00 -
UPDATE: Korea's April factory output and spending retreat on Gulf energy shocks *updated with additional information and market response SEOUL, May 29 (AJP) — The energy shocks from a months-long disruption of the Strait of Hormuz arising from Middle East conflicts have landed on South Korean shores, battering industrial activity, corporate investment, and consumer spending in April, official data showed Friday. Factory output fell 0.7 percent month-on-month, marking the first contraction since January, as the crucial refining sector was hit hard by the suspension of crude shipments from the Gulf, according to the Ministry of Data and Statistics. By sector, petroleum refining production collapsed by 19.4 percent, registering its sharpest drop in approximately 38 years since May 1988, when output plummeted following a massive nationwide industrial and petrochemical restructuring during the wake of Asian financial crisis. The historic contraction underscored the severe transmission of the Hormuz shock into domestic refiners. The factory floor displayed widespread friction as automaker output plunged 10.0 percent on components bottlenecks, though a 3.1 percent uptick in semiconductors capped steeper industrial losses. Mirroring the manufacturing slowdown, the manufacturing average capacity utilization rate dropped 1.2 percentage points from March to stand at 73.7 percent. Concurrently, manufacturers faced inventory overhangs, with the index rising 1.7 percent month-on-month, lifting the ratio of inventory to shipments by 5.1 percentage points to 98.2 percent. Amid the manufacturing retreat, industry-wide output stood at 117.8 in April, shedding 0.6 percent from the previous month to mark its first decline in three months. While public administration expansion offered a minor cushion, synchronized declines across services and construction dragged down the broader economy. Service sector output decreased 1.0 percent from the previous month, as spikes in domestic borrowing costs forced a 7.7 percent drop in financial and insurance services, alongside a 1.5 percent drop in wholesale and retail trade. The real-economy squeeze was equally visible in consumer markets, where retail sales tumbled 3.6 percent month-on-month—the sharpest pull-back since the beginning of the year. High price stickiness weighed down demand, leading to an 11.1 percent collapse in consumer durables like telecommunications equipment and computers, while non-durables including vehicle fuels shed 1.1 percent as motorists rationed expensive gasoline and diesel. Corporate investment lines turned equally defensive, with equipment investment retreating 3.6 percent from March, driven by an 11.5 percent drop in transport equipment such as aircraft imports. Domestic machinery orders received, a key forward-looking indicator for capital outlays, shrank 7.6 percent year-on-year. Concurrently, construction completed at constant prices dropped 1.4 percent month-on-month, registering a 5.5 percent contraction compared to the same period last year. Despite the broad-based retreat across current output and consumption, business cycle indicators continued to signal divergence due to historical lags. The cyclical component of the coincident index crawled up 0.2 points from March to 100.2, supported by previous export volumes. Meanwhile, the cyclical component of the leading index, a gauge for future economic health, advanced 0.6 points to 104.1, driven primarily by gains in the stock market and export-import price ratios before the full weight of the supply-chain shock consolidated. Despite the widespread retreat in April's macroeconomy, the benchmark KOSPI opened up 2.43 percent from the previous session at 8,384.31, catalyzed by breaking news that a peace agreement between the United States and Iran is imminent. Tech heavyweights Samsung Electronics and SK hynix continue to rewrite their historical highs, surging past 310,000 won ($207.3) and 2.3 million won, respectively. The morning rally was heavily fueled by the combination of South Korea’s robust 1.7 percent gross domestic product (GDP) growth in the first quarter—propelled by soaring semiconductor prices and resilient global demand—and Thursday's reports that a final peace accord between Washington and Tehran now awaits only the formal signature of U.S. President Donald Trump. 2026-05-29 12:44:14 -
Korea's April industrial activity and spending retreat on Gulf energy shocks SEOUL, May 29 (AJP) - The energy shocks from months-long disruption of the Strait of Hormuz from the Middle East conflicts arrived on South Korean shores, battering industrial activity, corporate and consumer spending in April, data showed Friday. Factory output fell 0.7 percent from the previous month in April, the first contraction since January, as the refining sector was hit hard by the suspension of shipments from the Gulf, according to the Ministry of Statistics and Data. Industry-wide output stood at 117.8 in April, down 0.6 percent from the previous month in the first decline since January. Refining production collapsed 19.4 percent, marking its sharpest decline in roughly 38 years since 1988 in the aftermath of the Asian financial crisis and nationwide industrial restructuring, underscoring the depth of the Hormuz shock. 2026-05-29 09:19:21 -
Stocks, bonds tumble as BOK chief signals potential rate hikes in 2nd half SEOUL, May 28 (AJP) - South Korea's stock and bond markets were jolted on Thursday after the Bank of Korea (BOK) hinted at potential rate hikes in the second half of the year. While the benchmark KOSPI recovered most of its intraday losses near the close on institutional interpretations of a "healthy" rate hike, government bond prices collapsed, ending sharply lower as monetary tightening was seen as almost certain. The index finished at 8,185.29, down 0.53 percent, while the tech-heavy KOSDAQ tumbled 2.54 percent to close at 1,104.36. The KOSPI plunged more than 4 percent during intraday trading, briefly breaching the psychologically critical 8,000 threshold, while the KOSDAQ widened its losses by shedding over 5.7 percent to hit an intraday low of 1,068. Market losses were sharply exacerbated after BOK governor Shin Hyun-song hinted at consecutive rate hikes during a press conference following its monetary policy meeting. Adding to the hawkish momentum, the central bank's newly released six-month dot plot revealed that the benchmark rate could peak at 3.25 percent, a significant leap from the current 2.5 percent. "The direction ahead is crystal clear," Shin said, taking a firm stance when pressed on the timeline for monetary tightening, adding, "The remaining issue now is simply when, how fast, and how far we will raise rates." The KOSPI managed to claw back much of its steeper losses near the close, driven by upbeat projections for the artificial intelligence (AI)-driven semiconductor sector, led by chip giants Samsung Electronics and SK hynix, which posted combined operating profits of over 90 trillion won (US$59.9 billion). The KOSDAQ, with less exposure to major semiconductor stocks and weaker corporate earnings, failed to mount a meaningful recovery before the close. Stock markets are highly sensitive to interest-rate expectations because higher rates raise borrowing costs for both companies and consumers, potentially slowing corporate earnings growth. Rising rates also make safer assets such as bank deposits and bonds more attractive, prompting investors to shift money out of equities and into fixed-income and foreign exchange markets. In the fixed-income market, South Korean government bond yields surged across the board. The yield on the benchmark three-year government bond advanced 5.5 basis points to close at 3.766 percent, while the ten-year note jumped 4.5 basis points to finish at 4.147 percent. Both benchmark yields touched their highest levels in approximately 15 years, reaching milestones not seen since August 2011, when the eurozone sovereign debt crisis and the credit rating downgrade of the U.S. convulsed global markets. A bond is essentially a fixed-rate contract, meaning expectations of higher interest rates make existing lower-yield bonds less attractive. As investors sell those bonds in favor of newer, higher-yielding ones, bond prices fall and yields rise. The three-year government bond yield is particularly sensitive to expectations for the BOK's policy path over the next few years. That is why even hawkish signals from the BOK can trigger sharp moves in short-term yields, as seen in the surge in the three-year note. Market observers also noted that Shin's stern warning about the country's outstanding margin trading balance, which stood at 36.7 trillion won, up a sharp 34 percent since the beginning of the year, helped cool overheated market sentiment. Margin balances track the amount of capital or shares borrowed by retail investors from brokerages for leveraged trading. "The capital losses from highly leveraged, debt-fueled trading are ultimately borne by market participants who do not carry debt," Shin said. "This behavior distorts the normal economic demand curve." 2026-05-28 17:39:52