Background on Key Figures and Relevance
The negotiations between the United States and South Korea for a finalized trade agreement are facing delays due to currency issues, according to a high-ranking presidential official. This situation arises after US President Donald Trump signed a decree last week to implement the trade agreement with Japan, which includes an investment package worth $550 billion.
South Korea’s Unique Position
South Korea has yet to reach a written agreement on its trade deal, which was sealed in July and includes a $350 billion investment package for the US. Kim Yong-beom, Secretary of Presidential Policy, highlighted that South Korea and Japan are in different situations. He echoed previous comments from the Minister of Industry and Minister of Foreign Affairs, stating that Seoul cannot accept terms similar to those outlined in Japan’s investment agreement.
Currency Market Impact Concerns
Kim Yong-beom emphasized that the most crucial issue to address for South Korea to sign off on any investment package is its impact on the domestic currency market, specifically the US dollar-won exchange rate. He explained that while both countries have trade surpluses, their economic sizes and market conditions for currency exchange differ significantly.
Japan’s Advantageous Position
Kim pointed out that Japan holds an international currency status, along with a foreign exchange swap program and three times larger foreign exchange reserves than South Korea. These factors would help mitigate the impact of Japan’s $550 billion investment in the US market.
Market Expectations and Concerns
Since the agreement’s announcement in late July, market agents have anticipated that South Korea’s $350 billion investment will exert long-term downward pressure on the won.
- Comparison to Domestic Investment Capacity: The $350 billion investment dwarfs the maximum amount state-owned banks can acquire annually, which ranges from $20,000 to $30,000 million.
- Comparison to National Pension Fund Overseas Investments: The South Korean National Pension Fund’s monthly overseas investments range between $200 and $3,000 million, a significant factor already cited by market agents as a major force weighing on the won.
