On August 6, Deputy Prime Minister Choi Sang-mok held an emergency Meeting on Macroeconomic and Financial Stability with related institutions[1] to assess the current status of domestic and global financial markets and to discuss response strategies.
In the latter part of last week, the U.S. stock market experienced a significant decline due to a combination of following factors: 1) concerns about economic slowdown stemming from weak July employment data, 2) worries about major tech companies’ performance and valuation pressures, 3) unwinding of yen carry trade following a rate hike by the Bank of Japan, and 4) renewed instability in the Middle East.
The meeting attendees noted that the Asian stock markets, including Korea’s, appeared to react excessively as they began trading ahead of the U.S. market after the weekend with the insufficient assessment of the above-mentioned factors.
They noted that while previous sharp drops were accompanied by tangible shocks to the real economy, stock, foreign exchange (FX), and bond markets, this market correction has been an unusual situation as only the stock market has been affected by external shocks, differing from past patterns.
In addition, with the Korean economy showing signs of gradual recovery and the FX and money markets demonstrating steady trends, attendees agreed that the government and the Bank of Korea have sufficient policy response capabilities to address market volatility resulting from external shocks.
They also agreed that market participants need to be cautious of excessive anxiety and make calm and rational decisions.
DPM Choi stressed that in light of escalating external uncertainties such as the resurgence of geopolitical risks in the Middle East and the U.S. presidential election, relevant agencies must maintain the highest level of vigilance and continue operating the 24-hour joint monitoring system. He also urged that if market volatility excessively expands, the relevant agencies should closely coordinate and respond according to contingency plans, and strive to maintain a firm response system to ensure the market stabilization measures are implemented promptly when necessary.
Along with it, the attendees shared the view that policy tasks such as the Corporate Value-up programs, FX and bond market reforms, and supply chain expansion, should be pursued steadfastly to enhance market resilience and bolster safety nets against external shocks.
[1] The meeting was joined by the Bank of Korea (BOK) Governor, Chairman of the Financial Services Commission (FSC), the Financial Supervisory Service (FSS) Governor, and the Senior Economic Adviser.
Please refer to the attached files.
