This stimulus package was initiated with a preview, making it a policy stimulus that receives a bit more spotlight. In fact, there may be an increase in demand for purchasing yuan to invest in China. I think the market is somewhat accepting this, suggesting that this might have a little bit of an effect. China's foreign exchange reserves still exceed three trillion dollars, and the country continues to post trade surpluses. It seems unlikely that a country in this situation would easily fall into a financial crisis. 

Alright, let's leave the discussion about U.S. interest rates and the economy here for now. Oh, and we cannot avoid talking about Japan. Last Friday, they decided to keep interest rates unchanged, but one of the biggest fears in the market right now is the potential for a carry trade unwind, which has already shaken the financial markets significantly. Just yesterday, there was a report in the House regarding this, indicating that if U.S. interest rates continue to decline...

Two hundred billion dollars could be liquidated additionally. This means there could be another fluctuation. Therefore, it seems there are many concerns about this. What do you think about it? 

Yes, originally, when the interest rate was raised in July, Governor Ueda made a strong statement, suggesting that the possibility of an interest rate hike in October was high—either in October or November. However, the current sentiment is leaning towards a hike around December. The reason is that Governor Ueda recently came out and said that it seems appropriate to raise the interest rate now, which changed the narrative. As a result, the possibility of a December hike was seen as somewhat increased for Japan. 

But the problem is that if Japan raises its interest rates while the United States lowers them, the interest rate gap will shrink significantly, which could stimulate the exchange rate. We don't know when the exchange rate will be stimulated, so Japan also has to consider the pace of its actions.

I'm watching this closely, but suddenly the US made a move. They raised by 50 basis points, which was quite a surprise. They must have been shocked because they were considering a 25 basis point increase. When the US raises by 50, it puts a lot of pressure on others to follow suit. From their perspective, if they were just sitting still while the US raised rates by 50, it would feel like they were lowering their own rates. Lowering their rate from 255 would have the same effect as raising it by 255. So, they were taken aback, wondering what was going on. 

Then, right after the FMC meeting last week, the Bank of Japan's Monetary Policy Committee met, and there, Governor Ueda mentioned that they can't keep track of the US's interest rates or their trajectory. He said that because they can't predict it, they need to move cautiously. This means they will continue to monitor the US's path closely, especially after that 50 basis point increase, right?

Then, of course, interest rates or the pace will have to slow down here. So now, this is shifting to February next year. The market is seeing it that way. Yes, that's right. So December won't be easy; it's going to be February, right? That's how things are moving. 

So, for example, although no one knows for sure, if in November they raise by 50, then the effect will be as if the U.S. is raising rates. Right? So, in that case, Japan would also have to raise rates, which makes it difficult. Ultimately, Japan has to adjust based on how the U.S. moves. The liquidation of the trade is a blow to the U.S., but it's also a blow to Japan. 

Typically, if Japan takes the lead, we could raise rates first and have the U.S. follow. That would be ideal, but in reality, it's a bit challenging.

It seems that we are indeed being somewhat led by the United States. We can interpret this as a form of international cooperation with the U.S. Rather than simply being dragged along, we are engaging in international collaboration. As the pace of interest rate cuts in the U.S. accelerates, as you mentioned, international cooperation becomes increasingly important. 

I also want to talk about China, as a large-scale stimulus package has been announced. They are lowering mortgage rates, reducing the reserve requirement ratio, and the Chinese government has stated that they will provide liquidity to the stock market. However, it's not the first time China has announced such stimulus measures. Despite this, the market has shown some optimism and the stock prices have reflected that sentiment. So, how will this stimulus be different this time?

Look, first of all, this stimulus measure started with an announcement. So, it wasn't just the governor of the People's Bank who showed up; all the heads of financial institutions were present. This means that the heads of the regulatory authorities are all on board. When all these leaders are present, it indicates that we are aligning our views and moving forward with a consensus on this policy. Therefore, from the very start, this stimulus package is receiving more spotlight than usual. 

Now, they have announced the stimulus measures, which not only include lowering the reserve requirement ratio but also adjusting the down payment ratios for mortgages. They are also considering the asset market. So, they are saying, We will support you if things fall apart. This demonstrates the strong will of the government regarding the stimulus. Until now, during the COVID-19 pandemic, with all the lockdowns, it has been quite intense.

They were passive, but now they are signaling that they will actively change. You can think of it that way. Where can we interpret this? Typically, when China lowers interest rates, the yuan should weaken because the supply of the yuan increases. However, if lowering interest rates can stimulate China's growth, the rates may decrease, but the room for growth increases, which could lead to an increase in demand to buy yuan and invest in China. As a reference, there was an announcement yesterday, and surprisingly, the yuan showed strength. It seems that the market is starting to accept that this time it might have some effect. If it has an effect, that would be great. China's economy is not doing well, so ultimately, our economy cannot avoid being affected.

From our perspective, while we may deny it, there is a strong tendency to view things in relation to China. Ultimately, when we look at it, there should be some measures to enhance the basic foundational strength within the industry in China, particularly regarding structural adjustments. However, restructuring is indeed a painful process. It's the same for individuals; it is very difficult to abandon existing habits and start anew with a rigorous approach. It's much easier to manage debt and continue growing than to shed burdens or reduce existing businesses. These are all painful choices, and it is indeed challenging to make them. As a result, it seems that China has been prolonging this process, but now that a certain level of consensus has been reached, there is a thought to begin structural reforms.

That could be true. However, when it comes to structural reform, there are structural reforms that can be implemented in a state of significant shock, but if we somewhat ease the environment by injecting some money, it might be a bit better. This could lead to discussions about whether structural reform and interest rate cuts are intertwined, especially since China is showing movements that are somewhat different from the past. I think it's time to monitor how this area will perform to some extent. 

Also, I want to ask one more thing about China. I'm curious whether there is a possibility of a financial crisis in China because the yield on Chinese government bonds has been extremely low and continues to remain so. Banks are unsure where to place their money, as they have purchased a lot of Chinese government bonds, leading to a significant increase in international prices.

There are some concerns about the future, particularly regarding the potential liquidity crisis in Chinese banks and the possibility of a financial crisis. If we look at the situation with SVB, they had purchased long-term government bonds, and when interest rates suddenly rose, they faced significant difficulties. Similarly, Chinese banks could be exposed to that kind of risk. Among the smaller banks, there are likely some that have excessively invested in government bonds, and those banks would probably be affected. However, for the larger state-owned banks in China, they are not solely reliant on government bonds; they also have substantial lending activities. This does not mean that the situation is entirely positive, but I think it would be challenging for this to escalate into a full-blown financial crisis. Additionally, China’s foreign reserves, particularly in dollars, still exceed three trillion.

Yes, and in trade, we are still maintaining a surplus. It seems a bit difficult for such a country to face a financial crisis anytime soon. The dollar is continuously being reduced; this applies to U.S. Treasury bonds as well. Reducing the dollar is indeed correct, and reducing U.S. Treasury bonds is also correct. However, this is not exact statistics. For example, Belgium is currently buying a lot of U.S. Treasury bonds compared to the past. Why is Belgium doing this? It's like this: Imagine a foreign journalist, but despite being foreign, they are purchasing through my channel. This counts as domestic buying. This is how domestic institutional buying happens. What I mean is, as I mentioned earlier, if China buys Treasury bonds through Belgium, then they are actually purchasing U.S. Treasury bonds.

So, it's not that China bought U.S. Treasury bonds directly; rather, they purchased them through Belgium. However, it's possible that a trust company in Belgium actually executed those transactions. Recently, we've seen that China's holdings of U.S. Treasury bonds have been decreasing, while at the same time, countries in Europe that previously weren't buying much are starting to increase their purchases. I believe that the absolute amount is indeed decreasing, but there are also some hidden increases on the other side. It seems like there are indirect investments happening. Yes, that could be one way to look at it. Now, I would like to briefly discuss the South Korean economy. The Bank of Korea is set to make a decision on interest rates in October. With the U.S. cutting rates, the interest rate gap between our country and the U.S. has narrowed. Yes, I see that as well.

At that time, there were concerns about capital outflow, which seemed to create some room for the Bank of Korea. Now, as the Bank of Korea has to make a decision on interest rates in October, what are their current considerations? After the U.S. lowered rates by 0.5, the Bank of Korea made a proactive announcement. This means that the Bank of Korea's monetary policy flexibility has increased. When the U.S. did not lower rates, it was very uncomfortable for us to lower them first. However, since the U.S. has lowered rates, we may lower our rates accordingly, or perhaps by a smaller amount. Regardless, it is true that the burden of adjusting interest rates has decreased significantly. Furthermore, inflation in our country is stabilizing, and the growth rate is showing signs of slowing, primarily driven by domestic demand. As you just mentioned, it seems that the issue of interest rate differentials with the U.S. has also eased somewhat. So, when it comes to interest rates...

There is a problem with household debt, particularly regarding real estate. So, I think we will see how this issue can be managed. The Bank of Korea mentioned that household debt has decreased a bit in September, but while the growth rate has slowed, it has not fundamentally changed. From what I've heard from the research team that came out, they mentioned that in September, due to the Chuseok holiday, it would be premature to make any conclusions based solely on the September data. They suggested that it might not be the case that housing prices have stabilized. Therefore, the trends in housing prices and the increase in household debt will be critical points when considering lowering the benchmark interest rate. However, I recall that the loan regulations began around September, with the stress test and DSR limits being implemented.

Ultimately, there is a time lag in the point at which loans decrease. Just because they say it will start in September, it doesn't mean that loans will decrease right away. Most loan applications are submitted a month or two prior, so what this means is that it will be difficult to reduce the increase in household debt until the end of the year, based on existing trends. From the perspective of the Bank of Korea, when looking at the data, there might be a possibility of being a bit cautious. This is also reflected in forecasts, which suggest that the housing market is unlikely to cool off in the short term. So, while the rate of increase in household debt may slow down, the overall increase itself will still be maintained. Therefore, it will not be easy for the Bank to actively lower interest rates. However,

Here, the expression active was used. I don't want to do it, but I still have to. So, how do we usually handle it? Sometimes, there are things we don't want to do, right? Do we usually do them quickly or slowly? I tend to do them a bit quickly. This is about communication. It means that when we really don't want to do something, but we have to, we tend to approach it slowly. So, I think the market will lower interest rates a bit more slowly than expected. They already skipped August, right? And even if they do lower rates, it will likely be less than what the market expects. That's what I'm thinking. Alright, I'm trying to wrap up the conversation now. Well, originally, the director isn't someone who closely analyzes the stock market, but...

I would still like to talk a bit about the asset market, especially since our stock market has been in a prolonged state of stagnation and is struggling to gain momentum. I often wonder why this is happening. It seems like we might be overly focused on the U.S. market, which could be part of the issue. Many people are contemplating when the warmth will return to our stock market and the asset market, so I’m curious about your thoughts on this. I find it frustrating too because our market should be doing well. 

I think, although it might be a stretch to say this, that our status as a small open economy is somewhat of an issue. Being a small open economy means we are highly dependent on exports. So, when it comes to exports, whether we look to the U.S. or elsewhere...

In China, it's not just our country's economy that matters; we react sensitively to how other countries' economies are moving. For example, if I export a lot to a certain country and I think their economy might be doing poorly, generally, when that country struggles, our country tends to do better. Money flows into our country, and we show strength. However, if that country has a high growth potential, then if their growth slows down, our growth will also slow down. In fact, it could slow down even more. So, in a small open economy, if export potential is high, the sensitivity to macroeconomic fluctuations can increase significantly. We can see that macroeconomic indicators, like economic growth and interest rates, fluctuate unpredictably. This means that our country's sensitivity to these changes is quite pronounced.

The first concern is the high levels, and then the second is that the temperature of China's economy has been quite high, but the Chinese economy is slowing down, right? I think these factors are also having an impact. I'm quite worried because, until now, exports were somewhat supporting our economy. This trend is becoming increasingly concerning, so I really do worry about it.

Now, for the final question, the long-awaited pivot era has finally arrived after four years. I would appreciate it if you could share how investors should set their mindset for portfolio construction and how they should view the market moving forward. I feel a bit apologetic for repeating the same thing, but regardless of the direction the Federal Reserve takes, the market tends to move ahead.

It is very strong. As a result, there are times when we are ahead of ourselves, and this can lead to situations where we need to reverse course. I believe the risks associated with anticipating the past have significantly increased. If we move like we did in the past, as if following a textbook, we could face serious setbacks. With interest rates being lowered, one might think it's time to invest in long-term bonds. While there might be some room for profit in long-term bonds, there are also many cases where the market unexpectedly rebounds, leading to losses. So, when interest rates are lowered, and since the Federal Reserve has started cutting rates, many people think macroeconomically that interest rates will go down, exchange rates will decrease, and stock prices will rise. However, there is no predetermined future. Although the direction has been set with interest rate cuts, the market has already moved too far ahead. If we do not keep pace with that speed, we will continuously see interest rates drop and then spike back up intermittently.

The volatility can show a lot of fluctuations, so during such times, it's very important to have multiple assets spread out, as the macro environment can quickly shift through various scenarios. Lastly, while we observed the Federal Reserve's interest rate cuts, there are other factors at play. For instance, in the case of the U.S. presidential election, the candidates' positions are completely opposite, which can also have a significant impact and contribute to uncertainty. Additionally, the situation in Israel can act as a variable. So, to reiterate, rather than thinking that everything is resolved just because interest rates are lowered and rushing towards one direction, it's better to cautiously spread investments. When a rotation occurs, the performance of the portfolio tends to be favorable in certain areas.

자산을 줄이면서 다른 자산을 계속 편입시키는 리밸런싱 전략을 효과적으로 활용하는 것이 필요하다고 정리하겠습니다. 넓게 깔고 가는 것이 위험을 줄이는 방법이라는 말씀입니다. 오늘도 신한은행 고영 단장님과 함께 거시 경제와 앞으로의 경제 흐름에 대해 이야기해 보았습니다. 단장님, 오늘도 수고 많으셨습니다. 감사합니다.

위안화의 반격, 성공할 수 있을까 [월간 오건영 2부]

드넓은 경제 바다에서 지식의 돛을 달아드립니다.

양영은 기자
-서울대/MIT 슬론 경영대학원
-경제부, 국제부, 정치부, 문화부

장혁진 기자
-고려대 미디어학부
-경제부(금융·유통), 정치부, 사회부, 문화부 


위안화의 반격, 성공할 수 있을까 [월간 오건영 2부]

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