On June 7, Deputy Prime Minister and Minister of Finance and Economy Koo Yun Cheol convened a joint Emergency Market Situation Review Meeting with relevant agencies at the Korea Federation of Banks Building to review recent developments in the domestic and global financial and foreign exchange (FX) markets and discuss policy responses.
The participants assessed that the Korean economy’s fundamentals and external credibility remain strong, underpinned by continued upward revisions to earnings forecasts across the semiconductor industry and related sectors, as well as a widening current account surplus.
With regard to recent developments in the FX market, the participants observed that the Korean won-U.S. dollar exchange rate had risen rapidly over the weekend, reflecting heightened tensions in the Middle East and expectations of U.S. interest rate hikes. They also noted that while the recent increase in exchange rate volatility was partly driven by supply and demand factors, including portfolio rebalancing and profit-taking by foreign investors amid strong performance in the domestic stock market, certain speculative transactions had contributed to accelerating one-sided market movements. The relevant authorities would work together and take the following measures in response.
First, it was agreed that excessive exchange rate volatility, such as that seen recently, is not conducive to the Korean economy and that excessive volatility and one-sided market movements will not be tolerated.
Second, as one-sided movements driven by offshore NDF derivatives transactions are affecting Korea’s FX market, it was agreed that these developments would be closely analyzed and that the transparency of NDF transactions would be enhanced. In particular, measures would be developed to encourage the migration of offshore NDF transactions to Korea’s onshore FX market.
Third, the participants agreed to examine, through inspections conducted by the Bank of Korea and the Financial Supervisory Service, whether there have been any speculative activities seeking to capitalize on the weakening trend of the Korean won or any suspected market misconduct in the FX market. Based on the findings, the authorities will take strict action as warranted.
Fourth, the participants agreed to investigate, through the task force on illegal FX transactions, whether importers and exporters are engaging in illegal lead-and-lag transactions by accelerating import payments or excessively delaying the repatriation of export proceeds in response to the recent rise in the exchange rate.
DPM Koo stated that market volatility could increase again depending on developments in the Middle East conflict and U.S. inflation trends. He added that the government would maintain a high level of vigilance and monitor market conditions around the clock, while working closely with relevant agencies to swiftly implement the measures announced today.
Meanwhile, the participants noted that, supported by the strong competitiveness of key industries such as semiconductors, the Korean stock market has expanded significantly in scale. As a result, its impact is no longer confined to the FX market but increasingly extends to public finance and the real economy. Against this backdrop, they agreed to strengthen the comprehensive management framework for various risks in order to enhance macroeconomic and financial stability, alongside efforts to pursue a hyper-innovation economy and accelerate structural reforms.
Please refer to the attached files.
