“Financial collapse” South Korea’s President Moon visits Japan in distress due to interest rate hike, won collapse due to backflow of funds “Two time bombs” Fear of explosion “Stray” South Korea’s Bun administration
South Korean President Moon Jae-in plans to visit Japan at the opening ceremony of the Tokyo Olympics on the 23rd, and the summit meeting with Prime Minister Yoshihide Suga is being coordinated. While it is certain that the so-called recruitment lawsuit and the comfort women issue will be rigorously pursued, it seems that one of the reasons why Mr. Moon is aiming to visit Japan is the problem of the Korean financial market. It is said that “two time bombs” may explode if funds start to flow backwards triggered by interest rate hikes, etc., as real estate prices soar and household debt swell.
A South Korean Foreign Ministry official confirmed on the 11th that he is considering attending the opening ceremony of the Tokyo Olympics and holding a summit meeting with Prime Minister Suga.
South Korea is demanding a full-scale summit meeting in line with Mr. Moon’s visit to Japan, but Prime Minister Suga said, “If you visit Japan, it is natural that you should respond politely in terms of diplomacy.” Regarding the violation of international law in the proceedings, he emphasized that “there is no change in the position of strongly demanding the Korean side to take appropriate measures.”
Why is Mr. Moon leaning forward when he visits Japan, which is not in a welcoming mood? “Because the US administration of Biden emphasizes the alliance between Japan, the United States and South Korea, improving relations with Japan has become an urgent matter,” the South Korean media said.
There is also a view that improving relations with Japan is a vital issue for the Korean economy.
According to the Bank of Korea (Central Bank), household debt as of the end of March was a record high of 1765 trillion won (about 171 trillion yen), which has increased to a level comparable to Korea’s gross domestic product of 1924 trillion won.
Professor Yukimitsu Sanada of the Faculty of Business, Aichi Shukutoku University, who is familiar with the Korean economy, said, “There is no doubt that the background to the increase in personal debt is the increase in borrowing due to the economic blow caused by the corona disaster. It should also be noted that there is a movement to borrow money and make speculations with the assets as collateral. We manage real estate as speculation rather than actual profit. “
According to KB Financial Group Inc., the average selling price of condominiums in Seoul in April was about 1,111 million won (about 19,540,000 yen), a record high. According to a civic group survey, it has almost doubled in the four years since 2017.
In South Korea, it has been pointed out that there are people called “Yankle” who borrow and raise funds by all means. It is said that many young people are devoted to investing in real estate, stocks, and virtual currencies (cryptographic assets) due to difficulty in finding employment, but as an economic measure against the corona, the Bank of Korea will lower the policy interest rate so that it can raise money at a low interest rate. The fact that it became overheated the bubble.
Mr. Sanada said, “In addition to the growing motivation to buy new homes due to the corona disaster that is also seen in the United States, the background of real estate investment that is characteristic of South Korea is also important. It is said that a good wife can manage her surplus assets on behalf of her husband. If low interest rate loans continue, wealthy people who can afford it will further accelerate investment in real estate. “
The rise in real estate in South Korea had been a social problem before Corona, but the Moon administration made the situation worse rather than solving it. Mr. Sanada mentioned above said, “Although criticism of the Bun administration that cannot stabilize real estate prices is increasing, it is not possible to easily change the policy to monetary tightening in Corona, and the basic environment is such that real estate speculation can be easily suppressed. There is no such thing. “
While low interest rate funds are on the market, borrowing bicycles will be possible, but the Bank of Korea has suggested raising interest rates by the end of the year. When interest rates rise, the flow of funds reverses, and household debt rises further. If the movement to let go of real estate purchased with floating interest rate loans is strengthened, the decline in asset prices will not be stopped.
In the case of South Korea, if funds flow overseas, there is a risk that the currency won will not stop falling. It is a currency exchange (swap) agreement that prevents this, but the agreement with Japan remains abandoned.
In the worst case, it is possible to enter the presidential election in March next year in a state of financial panic. Dissatisfaction with real estate policy is also a major factor in the fact that the approval rating of the largest opposition party, “People Power Party,” is higher than that of the Democratic Party of Korea in the opinion polls of South Korea.
Is there a concern about the financial crisis creeping into the Moon administration, which is trying to sneak up on Japan?