Comments on: Cheap Yen to blame? http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/ Korea... in Blog Format Thu, 24 Jul 2008 11:33:02 +0000 http://wordpress.org/?v=2.6 By: dokdoforever http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71500 dokdoforever Wed, 21 Feb 2007 16:13:06 +0000 http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71500 Dram-man you are probably familiar with the impossible trinity condition - that it is not possible to simultaneously have 3 things: independent monetary policy, capital mobility, and fixed exchange rate. The Korean govt appears to be intervening in the FOREX market to ensure a stable won, and capital moves fairly freely into Korea, depriving the authorities of control over domestic interest rates. So, increasing interest rates to cool a real estate bubble would merely attract in foreign investment, thereby increasing the supply of capital, and bidding down the interest rates to the original level. The Korean govt could give up exchange rate stability in order to raise domestic interest rates, allowing the won to appreciate. But one of the winners from a strong currency is the local non-tradeables sector (including housing), so this would do little to help cool the bubble. A cheaper Won would help, by attracting investment out of housing and into export manufacturing. Capital controls would impede efforts to improve competitiveness of profitability of the Korean financial sector - and don't appear too likely. Dram-man you are probably familiar with the impossible trinity condition - that it is not possible to simultaneously have 3 things: independent monetary policy, capital mobility, and fixed exchange rate. The Korean govt appears to be intervening in the FOREX market to ensure a stable won, and capital moves fairly freely into Korea, depriving the authorities of control over domestic interest rates. So, increasing interest rates to cool a real estate bubble would merely attract in foreign investment, thereby increasing the supply of capital, and bidding down the interest rates to the original level. The Korean govt could give up exchange rate stability in order to raise domestic interest rates, allowing the won to appreciate. But one of the winners from a strong currency is the local non-tradeables sector (including housing), so this would do little to help cool the bubble. A cheaper Won would help, by attracting investment out of housing and into export manufacturing. Capital controls would impede efforts to improve competitiveness of profitability of the Korean financial sector - and don’t appear too likely.

]]> By: Dram_man http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71404 Dram_man Wed, 21 Feb 2007 00:56:33 +0000 http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71404 I never had claimed to be a FOREX expert, as gbnhj's aptly pithy remark can attest. I just wanted to point out some of the parallels in the article vs. the situation in Korea (e.g. housing market, rather complex market cooling tools rather than blunt interest rates, unwilling to raise rates, and a rising won/yen value. I do not know what effect or consequence the Yen has on these exactly, but thought I would kick it out here since the parallels were interesting. On a more darker side, I am worried about currency controls. In a way Korea is already beginning such with respects to FDI and other foreign monies. And in my experience, given the bent of the body politic in Korea, if you can conceivably blame Japan for something...watch out. I never had claimed to be a FOREX expert, as gbnhj’s aptly pithy remark can attest. I just wanted to point out some of the parallels in the article vs. the situation in Korea (e.g. housing market, rather complex market cooling tools rather than blunt interest rates, unwilling to raise rates, and a rising won/yen value. I do not know what effect or consequence the Yen has on these exactly, but thought I would kick it out here since the parallels were interesting.

On a more darker side, I am worried about currency controls. In a way Korea is already beginning such with respects to FDI and other foreign monies. And in my experience, given the bent of the body politic in Korea, if you can conceivably blame Japan for something…watch out.

]]> By: Linkd http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71398 Linkd Tue, 20 Feb 2007 23:38:37 +0000 http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71398 Leapin' Lizards, Dram_man, that's rather a lot of issues to uncork in a single post. Property bubble, government intervention in real estate market, Kor/Jap interest and exchange rate differentials, global Yen-driven global carry trade and the prospect of currency controls... - I must balk, but before I do, let me share with the interested a couple of excellent places to follow the tremendous imbalances that have sent hundreds of billions, nay, trillions of dollars sloshing around the world in search of investment opportunities, and causing often-unjustified asset inflation in the process. Yen carry trade, central bank dollar reserve accumulation and property bubbles are all covered: http://www.rgemonitor.com/blog/setser http://www.morganstanley.com/views/gef/index.html Leapin’ Lizards, Dram_man, that’s rather a lot of issues to uncork in a single post. Property bubble, government intervention in real estate market, Kor/Jap interest and exchange rate differentials, global Yen-driven global carry trade and the prospect of currency controls… - I must balk, but before I do, let me share with the interested a couple of excellent places to follow the tremendous imbalances that have sent hundreds of billions, nay, trillions of dollars sloshing around the world in search of investment opportunities, and causing often-unjustified asset inflation in the process. Yen carry trade, central bank dollar reserve accumulation and property bubbles are all covered:

http://www.rgemonitor.com/blog/setser

http://www.morganstanley.com/views/gef/index.html

]]> By: gbnhj http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71372 gbnhj Tue, 20 Feb 2007 14:28:24 +0000 http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71372 Two points: 1) For years, folks have been saying that residential real estate in Seoul is overvalued, yet the prices continue to increase. Is that a bubble, or is that an increase in market value due to consumer perception? It's the same question that’s been raised in my hometown, Seattle, where real estate values continue to increase despite expert opinion that such properties have long been overvalued. In Seoul's greater metropolitan area, one of the most important factors propelling real estate prices is public perception regarding the quality of an area's educational system. Of course, other factors come into play - brand, total pyeong size, and convenience of location, to name a few - yet it is the perception of the quality of an area's educational system which provides the foundation upon which all these other factors are built. For years, education has been an integral element in keeping Kangnam real estate prices high. Pangyo, due in part to its geographic proximity to Kangnam, is considered attractive, yet even within Pangyo distinction in real estate prices exist between its eastern and western sides over the issue of educational services provision. Mokdong, also considered to have a good educational system, has seen its real estate prices climb while other areas more closely located to the central business district have not increased as rapidly. Which returns us to the original question: is Seoul's residential real estate overvalued? To answer that question, try asking a parent here if their child's education is really worth that parent's investment, and judge their response. Truly, it is that response which drives the real estate market here, and so long as the burden of debt may be shouldered, folks will shoulder it. 2) Dram_man, weren't you telling us just a short time ago to <i>sell</i> KWON ahead of some big fall which was sure to come after the NK nuke test? Now, which way did you say the wind was blowing again? Two points:

1) For years, folks have been saying that residential real estate in Seoul is overvalued, yet the prices continue to increase. Is that a bubble, or is that an increase in market value due to consumer perception? It’s the same question that’s been raised in my hometown, Seattle, where real estate values continue to increase despite expert opinion that such properties have long been overvalued.

In Seoul’s greater metropolitan area, one of the most important factors propelling real estate prices is public perception regarding the quality of an area’s educational system. Of course, other factors come into play - brand, total pyeong size, and convenience of location, to name a few - yet it is the perception of the quality of an area’s educational system which provides the foundation upon which all these other factors are built.

For years, education has been an integral element in keeping Kangnam real estate prices high. Pangyo, due in part to its geographic proximity to Kangnam, is considered attractive, yet even within Pangyo distinction in real estate prices exist between its eastern and western sides over the issue of educational services provision. Mokdong, also considered to have a good educational system, has seen its real estate prices climb while other areas more closely located to the central business district have not increased as rapidly.

Which returns us to the original question: is Seoul’s residential real estate overvalued? To answer that question, try asking a parent here if their child’s education is really worth that parent’s investment, and judge their response. Truly, it is that response which drives the real estate market here, and so long as the burden of debt may be shouldered, folks will shoulder it.

2) Dram_man, weren’t you telling us just a short time ago to sell KWON ahead of some big fall which was sure to come after the NK nuke test? Now, which way did you say the wind was blowing again?

]]> By: MJ http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71363 MJ Tue, 20 Feb 2007 11:53:13 +0000 http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71363 http://www.koreaherald.co.kr/SITE/data/html_dir/2007/02/21/200702210025.asp this is how korea benefits from cheap yen loans. recall a few months back when the talk started about the BOJ raising rates. there was doom and gloom in all the korean papers (no, not more than usual, just focused on this issue) talking about how all the SMEs would shrivel up and die b/c their cheap yen financing would dry up. So, Dram-Man, which one would you like to blame the Japanese for? Providing cheap financing to Koreans (and just about any other least-ways enterprising nation), or engineering a realestate bubble (that's not really a bubble, but if it was it would have been caused by greedy Koreans using the cheap financing to speculate in the bubble-7 despite the knowledge that the last time they borrowed short and lent long with foreign money they caused a financial melt-down)? http://www.koreaherald.co.kr/S.....210025.asp

this is how korea benefits from cheap yen loans.

recall a few months back when the talk started about the BOJ raising rates. there was doom and gloom in all the korean papers (no, not more than usual, just focused on this issue) talking about how all the SMEs would shrivel up and die b/c their cheap yen financing would dry up.

So, Dram-Man, which one would you like to blame the Japanese for? Providing cheap financing to Koreans (and just about any other least-ways enterprising nation), or engineering a realestate bubble (that’s not really a bubble, but if it was it would have been caused by greedy Koreans using the cheap financing to speculate in the bubble-7 despite the knowledge that the last time they borrowed short and lent long with foreign money they caused a financial melt-down)?

]]> By: Brendon Carr http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71361 Brendon Carr Tue, 20 Feb 2007 10:06:03 +0000 http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71361 Baduk demonstrates yet again the extent of his grip on reality. Foreign financiers are going to yank their funds out of China, thus triggering Asian Financial Crisis 2.0? What about China's <b>$1 trillion</b> in foreign-exchange reserves? Baduk demonstrates yet again the extent of his grip on reality. Foreign financiers are going to yank their funds out of China, thus triggering Asian Financial Crisis 2.0? What about China’s $1 trillion in foreign-exchange reserves?

]]> By: SomeguyinKorea http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71358 SomeguyinKorea Tue, 20 Feb 2007 08:38:45 +0000 http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71358 Cool. My favorite Japanese online store has just gotten cheaper. If only I could convince my wife that I need more guitars. Cool. My favorite Japanese online store has just gotten cheaper. If only I could convince my wife that I need more guitars.

]]> By: captbbq http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71350 captbbq Tue, 20 Feb 2007 07:49:08 +0000 http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71350 <blockquote>I have never understood why the government is insisting on such baroque methods of controlling real estate inflation.</blockquote> Perhaps the problem with that is the premise that they are trying to control real estate inflation. Most Politicians own land. People tend not to purposefully devaluate their investments. (Yes, it is hard to admit, but despite their cold black brine swishing hearts, I <i>am</i> implying that politicians are people) Did any of the past schemes meant to "control real estate prices" do any thing other than raise real estate prices? Didn't President Noh sign off on that law two years ago to halt new apartment building? I'll go out on a limb and give these guys credit, they aren't dimwits. They're doing more or less what they want to do, not what they say they are doing.

I have never understood why the government is insisting on such baroque methods of controlling real estate inflation.

Perhaps the problem with that is the premise that they are trying to control real estate inflation.

Most Politicians own land.
People tend not to purposefully devaluate their investments.

(Yes, it is hard to admit, but despite their cold black brine swishing hearts, I am implying that politicians are people)

Did any of the past schemes meant to “control real estate prices” do any thing other than raise real estate prices?

Didn’t President Noh sign off on that law two years ago to halt new apartment building?

I’ll go out on a limb and give these guys credit, they aren’t dimwits. They’re doing more or less what they want to do, not what they say they are doing.

]]> By: Sperwer http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71345 Sperwer Tue, 20 Feb 2007 06:59:20 +0000 http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71345 Judge Judy makes a good point about the savings realized by Korea as a result of the cheaper Japanese Yen in the scheme of things larger than the property bubble. It's not just - or even mainly - "parts" that are at issue here, but capital equipment and technology, of which Japan is by far the biggest supplier to Korea in monetized value terms (although the US tends to get all the negative press about the so-called draining of "national wealth" that results). Judge Judy makes a good point about the savings realized by Korea as a result of the cheaper Japanese Yen in the scheme of things larger than the property bubble. It’s not just - or even mainly - “parts” that are at issue here, but capital equipment and technology, of which Japan is by far the biggest supplier to Korea in monetized value terms (although the US tends to get all the negative press about the so-called draining of “national wealth” that results).

]]> By: baduk http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71344 baduk Tue, 20 Feb 2007 06:59:05 +0000 http://www.rjkoehler.com/2007/02/20/cheap-yen-to-blame/#comment-71344 jiwonsi, Gnomes pulled back their pppprecious(I am imagining Grom of the Lord of Rings) money from Thailand and Indonesia in 90s. This time it will be from VietNam and China. Korea will go down and down (50% cut for everything. For others, this video is banned. A half-German called "Sarang" did hip-shake, they say. It looked more like ass gyration to me. http://etv.donga.com/newsclip/videoreport.php?clip_index=200702200001824 It didn't look that sexy. Her height(maybe over 6feet?) is sexy. I think the group, new Babyvox, needed some hype and bribed the KBS ethics committee. jiwonsi,

Gnomes pulled back their pppprecious(I am imagining Grom of the Lord of Rings) money from Thailand and Indonesia in 90s. This time it will be from VietNam and China. Korea will go down and down (50% cut for everything.

For others,
this video is banned. A half-German called “Sarang” did hip-shake, they say. It looked more like ass gyration to me.
http://etv.donga.com/newsclip/.....2200001824

It didn’t look that sexy. Her height(maybe over 6feet?) is sexy. I think the group, new Babyvox, needed some hype and bribed the KBS ethics committee.

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