South Korea's Finance Minister Addresses Currency Concerns
South Korea’s Finance Minister has expressed a commitment to stabilizing the weak won, but has not yet introduced specific policy measures to address the ongoing concerns. This comes as worries about the persistent weakness of the currency continue to grow.
During a rare press conference focused on the currency market, Minister Koo Yun-cheol emphasized that authorities are closely monitoring "speculative trading and herd-like behavior." He added that all available options would be considered to stabilize the currency. However, he did not outline any concrete steps to tackle the rising demand for dollars in the short term, despite expectations from the market for more active policy interventions.
Koo acknowledged that South Korea's domestic market is reacting more sensitively to global financial market uncertainties due to structural demand pressure for dollars. Despite this, he did not mention any immediate actions to address the situation, even after a series of meetings with the National Pension Service (NPS), exporting companies, and domestic stock brokerages.
Market participants were expecting more substantial details during the press conference, but many found the content to be somewhat vague. A local currency trader noted that while there was significant attention on the event, the substance of the speech was relatively bland.
Following the press conference, the won initially gained but then lost some of its gains. It traded up 0.3% at 1,465.5 per dollar as of 0420 GMT, compared to a session high of 1,457.0. Earlier in the week, the currency had reached its weakest level since early April at 1,479.4.
Koo also mentioned a consultative body formed on Monday with the NPS. He clarified that the group is not intended to bring in the world's third-largest pension fund for a temporary measure to curb currency weakness. Instead, the focus will be on a long-term plan to balance investment returns and market stability.
When asked about potential incentives for exporters to repatriate earnings or tax benefits to boost domestic stock investments, Koo stated that neither option is currently being considered.
The won has weakened by more than 7% in the second half of the year, driven by concerns over an investment package tied to a trade deal with the United States. Additionally, the currency has faced pressure from higher overseas investments by retail investors and the NPS.
The Bank of Korea is expected to maintain its key interest rate unchanged on Thursday. This decision comes as policymakers continue to navigate a volatile currency environment alongside an overheated housing market.
Key Factors Impacting the Won
- Global Financial Market Uncertainty: South Korea's currency is particularly sensitive to global market fluctuations.
- Structural Demand for Dollars: Domestic markets face heightened pressure due to the need for U.S. dollars.
- Investment Package Concerns: The trade deal with the United States has contributed to currency volatility.
- Retail Investor Activity: Increased overseas investments by individual investors have put additional pressure on the won.
- National Pension Service Actions: The NPS's investment strategies have also influenced the currency's performance.
Future Outlook
While the government has not announced specific policies to address the current situation, it has indicated a focus on long-term solutions. This includes balancing investment returns with market stability through the newly formed consultative body with the NPS.
As the Bank of Korea prepares to make its interest rate decision, the focus remains on managing the volatile currency and addressing broader economic challenges. The coming weeks will be critical in determining the direction of the won and the overall economic outlook for South Korea.
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