Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol said Wednesday that the government will "immediately take necessary measures against excessive herd behavior" in the foreign exchange market, signaling heightened vigilance over rising volatility.
The Ministry of Economy and Finance said it convened a market conditions review meeting at the Government Complex in Seoul that day with the Bank of Korea (BOK), the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) to assess recent financial and foreign exchange market trends and risk factors.
Participants assessed that domestic financial markets are sustaining a broadly favorable trend on the back of solid economic momentum, citing May exports of $87.75 billion, up 53.2% from a year earlier. They particularly noted as a positive development that the domestic stock market's capitalization has overtaken India to rank sixth in the world.
However, with leveraged stock trading rising rapidly — margin loans grew from 27.3 trillion won at the end of last year to 38 trillion won as of the first of this month — the agencies decided to monitor related trends regularly and pursue preemptive risk management and investor protection.
On the foreign exchange market, officials diagnosed that volatility is widening due to factors including the Middle East war and continued net selling of domestic stocks by foreign investors, despite a record-high current account surplus. They analyzed that supply and demand factors stemming from foreign investors' portfolio rebalancing and profit-taking following the recent surge in domestic equities are further amplifying volatility.
"In a situation of high external uncertainty, we are closely monitoring with heightened vigilance to prevent the spread of anxiety," Koo said. "We will immediately take necessary measures against excessive herd behavior."
For the bond market, officials assessed that volatility in Korea Treasury bond yields is widening, influenced by global synchronization, inflation concerns and stronger expectations of domestic rate hikes. The government said it will closely monitor market conditions, communicate intensively with market participants, and respond in a timely manner through coordination among relevant agencies in the event of excessive volatility.
