[Financial Stability Report] Bank of Korea's Jang Yongseong: "Rapid Asset Price Increases Raise Risk of Sharp Corrections in Case of Shocks"

Message from the Lead Committee Member of the '2025 Second Half Financial Stability Report'

"Recently, as major market indicators such as interest rates, stock prices, and exchange rates have shown significant fluctuations, the Bank of Korea will continuously monitor both domestic and external conditions as well as instability factors within the financial system. When necessary, the Bank will actively pursue relevant measures to ensure the stability of our financial system, including policy coordination with the government and cooperation with financial institutions."

Yongseong Jang, Member of the Monetary Policy Committee, Bank of Korea

Yongseong Jang, Member of the Monetary Policy Committee at the Bank of Korea, made these remarks on the 23rd through his message as the lead committee member for the '2025 Second Half Financial Stability Report.' Jang emphasized, "In particular, we must maintain a consistent macroprudential policy stance to address financial stability risks arising from factors such as the 'differentiation of housing prices across regions' observed in the domestic housing market. It is important to pursue effective housing supply policies alongside targeted micro-level measures for vulnerable sectors."

He analyzed that, due to the recent easing of financial conditions, economic agents have become more inclined to pursue higher returns and asset prices have risen rapidly, which increases vulnerability by raising the likelihood of sharp adjustments in the event of future shocks. He cautioned that this risk needs to be carefully monitored.

Jang stated, "From a medium- to long-term perspective, we must continue gradual deleveraging of household debt to ensure stable and sustainable economic growth. Since there are potential factors that could constrain deleveraging in terms of future household loan demand, supply, and macroprudential policy, we will work together with the government to strengthen structural improvement efforts aimed at alleviating these constraints."

Meanwhile, Jang assessed that Korea's financial system remained generally stable in the second half of this year. This outcome was attributed to reduced uncertainty in the international trade environment, improvements in the real economy, and the strong resilience of both financial institutions and the external sector. However, he pointed out that volatility in the financial and foreign exchange markets has increased, as evidenced by sharp fluctuations in stock prices and the continued relative weakness of the Korean won. He also noted that credit risk in vulnerable sectors remains high, and that, with housing prices in Seoul and the greater metropolitan area continuing to rise sharply even after the government's measures, there are ongoing concerns about the accumulation of financial imbalances that must be closely monitored.