Trusted by over 15 Million Traders
The Most Awarded Broker
for a Reason
CATEGORIES
News
- Non-farm employment data put pressure on the US dollar, and the US dollar defens
- Kewang Stocks continue to be strong, setting a new high for more than three year
- N-character breaks the big positive line, gold and silver continue to be low
- US dollar index fluctuates and falls, Federal Reserve Director Cook formally sue
- U.S.-peer tariffs officially come into effect, the U.S. dollar index hovers arou
market analysis
Trade negotiations are in a deadlock! Why can’t South Korea learn from the US-Japan agreement?
Wonderful introduction:
Walk out of the thorns, there is a bright road covered with flowers; when you reach the top of the mountain, you will see the cloudy mountain scenery like green clouds. In this world, a star falls and cannot dim the starry sky, a flower withers and cannot desolate the whole spring.
Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Market Analysis]: Trade negotiations are in a deadlock! Why can't South Korea learn from the US-Japan Agreement?" Hope it will be helpful to you! The original content is as follows:
The trade negotiations between South Korea and the United States on lowering tariffs are currently at a deadlock. Earlier, the South Korean president reached an agreement with U.S. President Trump in July to include a $350 billion investment plan, but the outside world is concerned that the plan may have a significant impact on South Korea's foreign exchange market.
What terms did Japan agree to?
South Korean officials have argued that the agreement should mainly cover loans and not large direct investments. They made it clear last week that they could not accept terms similar to the $550 billion investment plan between Japan and the United States.
According to the Japan-US agreement, Tokyo agreed to xmspot.complete the allocation of funds within 45 days after the United States selected projects, and the free cash flow generated by the investment will be distributed evenly. After reaching the agreed amount, the United States will obtain 90% of the profit.
U.S. xmspot.commerce Secretary Lutnik made a tough statement last Thursday, saying that he would not give South Korea any flexibility and said: "Japan has signed an agreement, and South Korea either accepts the same conditions or faces tariff costs."
Key differences between South Korea and Japan
Since the announcement of the South Korean agreement at the end of July, the market has continued to worry that the resulting large demand for the dollar may seriously impact the South Korean foreign exchange market and lead to further depreciation of the won.
If there is turmoil in South Korea's foreign exchange market, it may trigger an increase in Asian currencies' volatility and drive funds to flow to traditional safe-haven assets such as the yen and gold.
South Korea suffered heavy damage from capital flight during the financial crisis in the late 1990s, so it has been implementing strict foreign exchange controls. Although South Korea began to open up its financial market to the outside world since last year, there is still no offshore won trading market.
According to the Bank for International Settlements (BIS) triennial survey in 2022, the average daily global transaction volume of the Korean Won is US$142 billion, while the Japanese Won is US$1.25 trillion. The won only accounts for 2% of global foreign exchange transactions, far below the 17% share of the yen.
Deep worries in South Korea
At the end of last year, the Korean won fell to a 15-year low of about 1,476 won against the US dollar, and is currently hovering around 1,390.
Market analysis points out that the South Korean National Annuity Fund alone requires US$40 billion for overseas investment every year, which has put heavy pressure on the Korean won. Citibank estimates that if the South Korean and US investment plans are implemented, an additional USD may generate about US$100 billion in annual demand between 2026 and 2028.
South Korea's economy was much smaller than Japan's, with current account surplus last year at US$99 billion, less than Japan's nearly US$200 billion; as of the end of August, South Korea's foreign exchange reserves were US$416 billion, while Japan's US$1.3 trillion.
South Korea's response strategy
In order to alleviate the potential impact, South Korean Presidential Policy Office Director Kim Yong-bun publicly proposed the idea of establishing a local currency swap mechanism with the United States last week. He stressed that the Japanese yen's status as an international currency and the unlimited swap agreement between Japan and the United States put Japan in a more favorable position.
South Korea's Minister of Planning and Finance, Gou Runchew, also said that foreign exchange-related measures will be announced when the tariff negotiations are xmspot.completed. He revealed on Monday that the US may "seriously consider" the local currency swap proposal, after local media reported that the South Korean government had formally filed the request to the US.
Which countries have a local currency swap mechanism with the United States?
The Federal Reserve has long-term swap quota arrangements with central banks in Canada, the United Kingdom, Japan, the European Union and Switzerland.
During the epidemic, the Federal Reserve established a temporary swap quota of US$60 billion with nine central banks including South Korea in March 2020.
After the mechanism expired in December 2021, the Federal Reserve provided Korean banks with US$60 billion in liquidity support security through a repurchase mechanism, allowing South Korea to borrow US dollars using its holdings of US Treasury bonds as collateral.
The above content is all about "[XM Foreign Exchange Market Analysis]: Trade negotiations are deadlocked! Why can't South Korea learn from the US-Japan Agreement?", which was carefully xmspot.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your transactions! Thanks for the support!
Every successful person has a beginning. Only by having the courage to start can you find the way to success. Read the next article now!
Disclaimers: XM Group only provides execution services and access permissions for online trading platforms, and allows individuals to view and/or use the website or the content provided on the website, but has no intention of making any changes or extensions, nor will it change or extend its services and access permissions. All access and usage permissions will be subject to the following terms and conditions: (i) Terms and conditions; (ii) Risk warning; And (iii) a complete disclaimer. Please note that all information provided on the website is for general informational purposes only. In addition, the content of all XM online trading platforms does not constitute, and cannot be used for any unauthorized financial market trading invitations and/or invitations. Financial market transactions pose significant risks to your investment capital.
All materials published on online trading platforms are only intended for educational/informational purposes and do not include or should be considered for financial, investment tax, or trading related consulting and advice, or transaction price records, or any financial product or non invitation related trading offers or invitations.
All content provided by XM and third-party suppliers on this website, including opinions, news, research, analysis, prices, other information, and third-party website links, remains unchanged and is provided as general market commentary rather than investment advice. All materials published on online trading platforms are only for educational/informational purposes and do not include or should be considered as applicable to financial, investment tax, or trading related advice and recommendations, or transaction price records, or any financial product or non invitation related financial offers or invitations. Please ensure that you have read and fully understood the information on XM's non independent investment research tips and risk warnings. For more details, please click here