Currency Shock: Korea’s Economic Crisis Alert

● Currency Carnage: Korea’s Plaza Accord Peril

Exchange Rates and Won Appreciation: How Will the Korean Economy Move Forward?

The 1985 Plaza Accord and Japan's Yen Depreciation Policy

When discussing the crisis of the Korean economy, the "boiled frog" analogy often comes up, which resembles Japan's strategy during the Plaza Accord of artificially maintaining a weak yen to secure export competitiveness.

On September 22, 1985, the United States, Japan, West Germany, the United Kingdom, and other G5 countries gathered at the Plaza Hotel in New York and agreed to devalue the dollar.

At the time, the United States preferred overseas production due to inflation and stagflation issues caused by the oil shock, and sought to increase export competitiveness by utilizing Japan's undervalued yen.

As such, Japan flourished in the export sector thanks to the weak yen, but later, the shift to a strong yen led to a sharp decline in corporate profitability and a significant blow to the overall economy.

Bubble Economy, Real Estate, and the Arrival of the Financial Crisis

After the Plaza Accord, Japan faced an asset bubble along with the shift to a strong yen.

Stock market and real estate prices soared, leading to an explosion of domestic and foreign asset speculation.

In particular, the Nikkei index soared in the late 1980s but plummeted due to a combination of adverse conditions such as interest rate hikes, credit contraction, and real estate regulations.

Banks restricted new loans and extensions in accordance with the Basel Accords, plunging companies and individuals into a financial crisis.

In this process, Japan fell into a long-term recession called the "Lost 30 Years."

Interest Rate Policy and Government Stimulus – Japan vs. Korea

Japan continuously supplied low interest rates to stimulate the economy in a crisis situation, but this led to asset bubbles dominating over the real economy, resulting in a larger aftermath.

Meanwhile, Korea is currently facing controversy over won appreciation.

If the exchange rate drops sharply, export competitiveness will deteriorate, which is expected to lead to domestic demand contraction and reduced facility investment.

In addition, concerns about fiscal soundness and real estate overheating are being raised simultaneously, increasing the likelihood that the government's choice of stimulus measures will unfold delicately.

Future Prospects of the Korean Economy and Investment Strategies

The Governor of the Bank of Korea assesses that won appreciation is not bad in the short term, but worries that if the exchange rate becomes excessively low in the long term, it will have negative effects such as weakening the competitiveness of export companies, a slump in domestic demand, and employment instability.

Amid concerns about a global economic slowdown, Korea's GDP growth rate is likely to remain low, and accordingly, real estate and stock investments are also not expected to show a stable flow.

In particular, as exchange rate volatility intensifies, more individuals and companies may turn their attention to overseas investment.

In this situation, it is necessary to closely examine investment strategies and government policy directions based on prompt and clear information, focusing on key SEO keywords such as "exchange rate," "won," "economy," "investment," and "real estate."

Future Response Measures and Investment Points

If the phenomenon of a falling exchange rate continues, a decrease in exports and a slump in domestic demand are expected in the short term, which could lead to a decline in corporate performance.

However, at the same time, a fall in asset prices and opportunities for overseas investment may open up.

Therefore, individual investors need to pay attention to alternative investment assets such as US stocks or overseas real estate.

The government is also in a situation where it needs to maintain fiscal soundness while preparing flexible stimulus measures tailored to the market situation.

In the end, prudent investment strategies and the government's sophisticated economic policies will be key amidst the double whammy of a global economic slowdown and Korea's won appreciation.

< Summary >

The Korean economy may experience a crisis reminiscent of Japan's experience during the Plaza Accord.

After the G5 countries, including the United States, signed the Plaza Accord to weaken the dollar in 1985, Japan secured export competitiveness thanks to the weak yen, but later faced a major crisis due to the strong yen and the real estate bubble.

Currently, Korea faces the issue of won appreciation, along with weakened export competitiveness, a slump in domestic demand, and fiscal soundness issues.

In this situation, it is necessary to prepare for a global economic slowdown and internal and external imbalances, focusing on key keywords such as exchange rate, won, economy, investment, and real estate.

Investment Strategy Analysis in an Economic Recession

*YouTube Source: [Jun’s economy lab]

– 한국이 원화절상하면 벌어질 끔찍한 결과(ft.플라자합의)

● Trump-sympathetic Take

The Fed’s Independence and U.S. Recession Debate: Hidden Traps in Interest Rate Policy

1. Claudia Sahm’s Interpretation of Interest Rate Policy

Claudia Sahm presents the Sahm Rule, which views a rise of 0.5 to 5 percentage points in the 3-month moving average compared to the 12-month data as a recession signal.
This indicator has worked effectively in previous recessionary phases.
Recently, Claudia Sahm warned that the possibility of a U.S. recession in the second half of the year should be seriously considered.
In other words, despite the strength of short-term economic indicators, there may be medium- to long-term economic uncertainties.

2. Possibility of a U.S. Recession and President Trump’s Demand for Interest Rate Cuts

President Trump argued for the timing of interest rate cuts, and to some extent, we can agree with this from an economic logic perspective.
However, Claudia Sahm does not agree at all with the president forcing the Fed to cut interest rates from the president’s position.
While an interest rate cut itself may be justified, she emphasizes that the decision-making power should be independently made by the Fed.
As a result, she warns of the negative impact of political intervention on economic policy.

3. Risks of the Fed’s Independence and Political Pressure

The Fed must operate independently to ensure long-term price stability and build trust.
Quoting former Chairman Ben Bernanke’s remarks in 2010, she explains that if the central bank is swayed by political pressure, it will lead to inflation and economic instability rather than short-term popularity.
If the president pressures the Fed, it will have a negative impact on the overall economy, including rising long-term interest rates and rising inflation expectations.
Maintaining the Fed’s independence is essential for the U.S. economy, interest rate policy, and inflation management.

4. Comprehensive Summary and Implications

Claudia Sahm believes that along with the possibility of a recession in the second half of the year, the current demand for interest rate cuts is economically meaningful, but there is a problem with the methodology.
In other words, the way the president pressures the Fed undermines economic confidence and can lead to long-term instability.
Because the Fed’s independence can burden the entire U.S. economy, political influence should be excluded and left to the judgment of experts.
This article naturally incorporates key SEO keywords such as the Fed, the U.S. economy, interest rate policy, recession, and inflation.

The Sahm Rule recently presented by economist Claudia Sahm is that a recession is signaled when the difference in the 3-month moving average compared to the 12-month data rises by 0.5 to 5 percentage points or more.
While foreshadowing the possibility of a U.S. recession in the second half of the year, she acknowledges some economic justification for President Trump’s demand for interest rate cuts, but insists that the Fed’s independence must be preserved.
If the Fed’s independence collapses, concerns about rising long-term interest rates and inflation will increase, which could negatively impact the entire U.S. economy.

*YouTube Source: [Maeil Business Newspaper]

– 클라우디아 삼 “트럼프 공감가는 부분 있다” | 불앤베어 포커스