[Click eStock] "Beware of Liquidity Shock from 'Yen' Rather Than US Recession"

Bundles of Japanese yen and US dollar bills [Image source=Yonhap News]

Hi Investment & Securities advised on the 6th regarding the recent sharp decline in the stock market that "it is necessary to be cautious of liquidity shocks caused by the yen rather than a U.S. economic recession."

Park Sang-hyun, an analyst at Hi Investment & Securities, stated, "The likelihood of the U.S. economy entering a recession phase immediately does not seem high," and added, "Considering not only employment indicators but also real economy indicators, the possibility of a hard landing for the U.S. economy is low."

Analyst Park said, "The recent global stock market plunge appears to be largely influenced by liquidity shocks due to the unexpected ultra-strong yen," and evaluated, "The unwinding of yen carry trades, where low-interest yen is borrowed to invest in stocks or bonds, is the main cause of the global stock market decline including Korea and Japan."

He added, "The Japanese government and the Bank of Japan (BOJ) will no longer tolerate yen appreciation, even to defend against the sharp drop in stock prices," but also noted, "There is a possibility that yen appreciation could reoccur during the Federal Reserve's (Fed) aggressive rate cuts, so these related issues need to be closely monitored."

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