Yuanta "Won Strengthening Expected... Trade Balance Improvement Anticipated"

[Asia Economy Reporter Hwang Yoon-joo] Yuanta Securities on the 24th forecasted a strengthening of the Korean won in the future and expected a high possibility of improvement in the trade balance.

Jeong Won-il, a researcher at Yuanta Securities, stated, "To assess the trade balance, it is necessary to have forecasts on the exchange rate and raw material prices, which affect export and import prices."

So far this year (January 1 to February 20), the trade balance recorded a deficit of 18.639 billion USD. Last year, the trade balance also remained in deficit except for February, with an average deficit of about 3.95 billion USD.

Researcher Jeong explained, "Due to various factors, a strengthening of the Korean won is expected in the future," adding, "From the perspective of sales and costs, cost reduction effects are expected to manifest, making it highly likely that the trade balance will improve." This is because the exchange rate affects import prices slightly more than export prices.

Jeong pointed out that the recent surge in the exchange rate originated from the U.S. employment data. Nonfarm payrolls in January reached 517,000, about three times higher than expected. As a result, the market anticipates that the Federal Reserve's tightening will not easily reverse, and the final level of rate hikes will be higher. It is also explained that difficulties in funding conditions in the capital market and uncertainties in monetary policy are still perceived at a significant level, causing increased volatility in the value of the Korean won.

Jeong said, "The U.S. Consumer Price Index (CPI) for January was also higher than expected, similar to the employment data," diagnosing, "This delayed the possibility of a monetary policy pivot (from tightening to easing), and the Korean won weakened noticeably."

Jeong forecasted that although volatility due to short-term indicator results will remain high throughout the year, the exchange rate will maintain a strengthening trend of the Korean won from a long-term perspective.

He explained, "Improvement in terms of trade, which has the greatest impact on the exchange rate, continues," adding, "This is an internal factor supporting the strengthening of the Korean won, and although the U.S. monetary policy showed temporary inflation, a policy shift to prepare for recession concerns is expected, so a weakening trend of the dollar is anticipated." He emphasized, "While a decline in the exchange rate may not significantly help export prices, it can reduce costs on the import price side, thereby aiding the trade balance."

From the perspective of price conditions, examining trends using export and import price indices also suggests that the worst situation has been resolved. Researcher Jeong analyzed, "The trade deficit occurred because import prices rose excessively compared to export prices," adding, "The trade deficit in terms of amount was caused by import prices rising more than export prices."

He projected, "Looking at recent trends, the spread between export and import prices has continuously shown signs of improvement since mid-last year," and "Especially in January, the spread of export and import price indices further decreased, allowing expectations for margin improvement at the national level."

This content was produced with the assistance of AI translation services.