BOJ move rattles Korea punters

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BOJ move rattles Korea punters

Local capital market indices tumbled on strong selling by foreigners after the Japanese central bank maintained its interest rate policy, signaling that its economy is not doing as well as expected.

The primary Kospi index fell below the 2,000 mark but barely recovered to close at 2,000.93 points on Thursday, down 0.72 percent compared to a day before, according to the Korea Exchange.

The secondary Kosdaq index also fell through the 700 mark to close at 699.70.

The Kospi actually reached as high as 2,022.99 points when the market opened, even though the U.S. Fed froze its key interest rate again overnight as the market expected due to weak recovery of employment data.

The index started tumbling as foreigners net sold for the first time in 12 days, mostly offloading local large-cap shares like Samsung Electronics and SK Hynix.

The main reason for the index’s fall was an announcement from the Bank of Japan (BOJ) in the afternoon. The BOJ decided to maintain its key interest rate at minus 0.1 percent and the base money target at 80 trillion yen ($732.24 billion) as planned earlier in the year.

The market initially forecast that the BOJ would come up with additional expansionary monetary actions to weaken the value of yen.

Economists say the BOJ’s decision Thursday raised suspicions that the Japanese economy may have entered a long-term slump, which is also a bad sign for Korea.

“Market insiders may have perceived the BOJ’s decision acknowledged that the negative interest rate policy doesn’t work anymore in livening up the economy, so investors started offloading more risky assets like emerging market equities [including Korean],” said Huh Jae-hwan, a senior economist at Mirae Asset Daewoo.

A strong yen is usually favorable to Korea’s economy and its exports.

But investors now fear that the Japanese economy is heading into a long-term depression even after the dramatic negative interest-rate policy, which is also a bad sign for Korea’s economy, he added.

Analysts forecast that Korea’s market indices may not be able to recover as foreigners pull-out of risky assets.

“The foreigners’ pull-out was quite large in both Korea’s spot and future markets,” said Oh Seung-hoon, a senior researcher at Daishin Securities. “If they completely turn their back on overall risky assets, the rally of the Kospi may stop.”

“The market is waiting for positive policies like a supplementary budget and the quantitative easing that are currently being considered,” Huh said.


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