I’m posting a little late. I was going to make a slight correction after writing, but I was late because something came up. T.T First of all, I’m going to briefly tell you about the exchange rate. As the won-dollar exchange rate has fallen to 1,300 won, the mood in the foreign exchange market has changed significantly. There are two reasons for the appreciation of the won: the Fed’s change of mind, and the other is the sharp decline in international oil prices. If you look at the recent exchange rate chart, there has been a sharp drop in interest rates and a sharp drop in oil prices, similar to the rate of the exchange rate. In fact, throughout the year, the Fed’s stance, the market’s expectations for it, and the deviation of those expectations have caused the exchange rate to surge.

The Fed’s interest rate hike is over. The prospect of interest rate cuts starting in September this year, and by the end of next year, the Fed’s benchmark interest rate would be pushed down to the early 3% because of the 200bp rate cut. That was the driving force behind the dollar’s exchange rate to KRW 1,215 earlier this year. But over the course of June and July this year, the Fed’s stance starts to change 180 degrees. In June, we skipped, but in July, we actually raised interest rates. And Higher For Longer turns into a buzzword. In the foreign exchange market, where you’re embarrassed by an increase after expecting a rate cut, you realize the surge in the dollar exchange rate. The exchange rate soared to KRW 1,360. And then again, the expectation for a pivot… This is the result of a sharp decline in the exchange rate again.

Stabilization of international oil prices has a significant impact on Korea’s trade surplus. In particular, the possibility of a trade deficit increases significantly if oil prices rise and imports strengthen at a time when exports are weak at a time when concerns are high about sluggish exports to China and a slowdown in the semiconductor industry. If the expectation that the semiconductor industry will turn around (improving exports) and the sharp decline in oil prices creates confidence that the trade surplus can continue in the future, the foreign exchange market may also have confidence that the won’s strength can continue for the time being. These two factors can be said to be the driving force behind the recent appreciation of the won.

However, this argument can be made. In fact, it means that Japan and China are no different. However, the yen has not budged from 150 yen to the dollar, and the yuan has strengthened, but it has only strengthened slightly from 7.3 yuan to 7.25 yuan to the dollar. In the end, most of the currencies were strong against the dollar, especially the won. As a result, the won-yen exchange rate exceeded 1,000 won per 100 yen in May this year, but has now fallen to 855 won per 100 yen. The won-yuan exchange rate also rose to 193 won in May and has fallen slightly to 178 won.

Why is the won particularly strong compared to other countries? I think we need to find an answer to the degree of relaxation. Japan is revising the YCC, but despite this, it is still continuing large-scale quantitative easing to negative interest rates. China has recently shifted its stance and is providing large-scale liquidity. In particular, inflationary pressure is low, which can spur the economy to a certain level. Assuming that the Fed’s pivot in the future will become a reality… In terms of economic stimulus capacity, Japan and China’s stimulus packages may be stronger than Korea’s. One of the reasons why the Bank of Korea is not easy to cut its benchmark interest rate is household debt, which has exploded sharply recently. It is not easy to use the Japanese-style active money release policy in a situation where household debt is high. Even if the Bank of Korea cuts its benchmark interest rate, it is likely to be only slightly higher than the market’s expectations. With concerns over a rate hike in the U.S. highly likely, the market now seems to be looking at each country’s monetary policy stance together. I think this has contributed to the won’s remarkable strength in the short term.

So can this trend continue? The strong won alone.. comes with considerable burden. With the won strengthening against the dollar, it may be less burdensome if other currencies are also strong. However, if the won strengthens against the dollar, it can be a significant burden to export growth in the future. In particular, the won’s excessive strength against the yen is burdensome. In fact, in 2015, when the won-yen exchange rate fell to 880 won (weak yen), the benchmark interest rate was cut to make up for the slowdown in export growth with the growth of domestic demand. For your information, the U.S. was fidgeting with the key rate hike card at the time.

When looking at the exchange rate, we need to look not only at interest rates but also at growth. If there is an expectation that Korea’s sluggish export growth will become a reality, the won will also come under pressure to weaken. With the currencies of other countries not showing a remarkable strength, the won’s solo strength.. I think it will be quite burdensome. I will cut down on today’s essay here. I’ll say goodbye with weekend essays. Thank you.