You Should Get Credit For Avoiding Huge Mistakes
This is what the Bank of Korea should be thinking and saying out loud. So, the Seoul Gyopo Guide will say it for them. Let’s see, if the Bank of Korea listened to public pressure, and didn’t stick to their beliefs, just where would the Korean economy, and the KOSPI be? If you had not noticed, the stability of the global economy at large is very much in question at the moment. One of the most exposed economies to the state of the global economy? You got it. South Korea.
Dokdo? Meh. The Real War is the Korean Won vs the Japanese Yen
Yeah, yeah, I know: 독도 우리땅이다. At the Bank of Japan, and in the boardrooms of Toyota, Honda, Nippon Steel, and Mitsubishi Heavy, Dokdo may as well be Mars. However, the fact is that if the world economy shrinks, the Korean Won will be the real target. You may, or may not, know that Japan has been complaining about the strong Japanese Yen. This blog has pointed out, on numerous occasions, that Korea has been an enormous beneficiary of hedge fund and other speculative activity. Now, we can say with pride that Hyundai is now producing cars that are the greatest thing since black shin ramen, but the fact is that the Accord/Camry/Sonata/Sentra, etc are all highly competitive, quality cars. Except for one thing: Korea’s cars are way cheaper on a percentage basis due to its undervalued currency. Period. You may need to do some clicking, but I am certain that you will find no less than 5-10 posts on this blog alone which have pointed out that Korea has benefited, until now. That said, if the world economy actually shrinks, then the Korean Won may rise because the Japanese may buy Korean Won, and not the US Dollar. The blurbs about Dokdo will become a mere afterthought, and an actual currency war could begin in earnest.
Bank of Korea, Bullets Intact, and It May Need Them
By maintaining its wait-and-see attitude, and knowing the Korean economy is structurally fragile (poor domestic demand, poor real estate market, excellent exports, vulnerable to the global economy), the Bank of Korea has known that it would need to be flexible under a wide variety of scenarios. Which factor becomes dominant is still a tale unwritten: the Bank of Korea has done well to have its bullets still intact, so that it can react when it becomes appropriate. It may very well be that the proper policy response will be to lower interest rates if the global economy continues on its current path. To those vocal critics from the recent past, the Bank of Korea can rightfully tell them to uh…bleep the bleepedly bleep bleep.