Aftermath of Martial Law... "Attention Needed on Next Year's Budget and Won Depreciation"

Debt Reduction VS Expansion Fiscal Conflict
Yen Emerges as Dollar Alternative
Won Depreciation May Widen
Emergency Martial Law Effects Expected Until Mid-January

Meritz Securities forecasted on the 6th that market uncertainty due to political issues will continue until mid-January next year. During one week, three major political events occurred: the declaration and lifting of martial law in Korea, U.S. President-elect Donald Trump's mention of tariffs, and the French National Assembly's vote of no confidence in the cabinet. Accordingly, they analyzed that attention should be paid to the 2025 government budget and the depreciation of the Korean won.

Researcher Park Su-yeon of Meritz Securities stated, "The political events left two implications for the financial market: the 2025 government budget and the rise of the Japanese yen."

On November 30, Trump mentioned on social media, "If BRICS countries attempt to move away from the dollar, I will impose a 100% tariff." As a result, the dollar-yuan exchange rate briefly surpassed 7.30 yuan offshore during the week.

On December 3, President Yoon Seok-yeol suddenly declared martial law, which was lifted six hours later. At that time, the dollar-won exchange rate surged to 1443.85, similar to the previous high of 1445 won in October 2022.

On December 4, the French National Assembly passed a vote of no confidence against the cabinet. French President Macron must appoint a new prime minister who gains the confidence of the parliament after the current prime minister resigns.

Researcher Park analyzed, "In both Korea and France, the parliamentary conflicts over the 2025 budget between 'reducing government debt' and 'expansionary fiscal policy for economic stimulus' triggered political uncertainty." She explained that since new administrations took office in several countries during the election year of 2024, this is a phenomenon that other countries may also experience.

The rise of the Japanese yen as an alternative to the dollar is also significant. Researcher Park emphasized, "The yen is a safe-haven asset, has high valuation appeal due to prolonged undervaluation, and interest rate hikes are expected," adding, "the yen is a currency that limits further increases in the dollar index since the fourth week of November."

She further diagnosed, "Considering that President Trump's inauguration is on January 20, the depreciation of the won during the upcoming strong dollar period may be greater than that of other countries."

Researcher Park predicted that the aftereffects of martial law will continue until mid-January. He said, "Looking back at the case of the Park Geun-hye administration's resignation in 2016, it took about 46 days from the first media report to the resignation," and "If simply applied to the current date, the situation is expected to calm down around January 18, 2025."