Is the current rebound after the won crash within expectations? An analysis using the Elliott wave indicators

The USD-KRW chart briefly broke through 1,290 won per dollar, leading some to fear a currency crisis tied to Korea’s possible bankruptcy, but
it has managed to avoid a fatal blow thus far.

Where are Korea and Japan different? Why Japan, the world’s most indebted country, does not go bankrupt while Korea does

Japan is the world’s most indebted country.

You’ve probably heard the propaganda from the Ministry of Finance that says, “1000 trillion yen of debt, 8 million yen of debt per citizen!” at least once.

There is an interesting article countering this view,hereI have linked it here.

In short, as the title states,Japan will not go bankrupt, but Korea will.

Now, I will explain the reasons.

Korea’s national debtis purchased by foreigners, whereas Japan’s government bonds are purchased by Japanese people

A fatal weakness of Korea is that there is no megabank capable of absorbing the country’s bonds domestically.

Since Korea lacks megabanks with the financial capacity to absorb its own government bonds, there is no domestic taker for the bonds,so Korea’s bonds must be bought by foreigners.

Furthermore, the won has caused currency crises in 1997 during the Asian Financial Crisis and in 2008 during the Lehman Brothers shock due to dollar shortages, but in 1997 it was placed under De facto IMF management.Article

There was another risky period in 2011, but the Democratic Party administration helped by signing currency swaps (it is phrased here as “they did it deliberately”).

Since then, as you all know, Korea has forgotten the debt its saviors granted and, as a result, Akihiro-kun became the first Korean president to land on Takeshima Island (lol).

Because of such history, the perception among foreign investors that “Korean won cannot be trusted” has become a brand, soKorean government bonds are issued in dollars.

In contrast, Japan has many megabanks (Mitsubishi UFJ, Sumitomo Mitsui, Mizuho, Resona, Shinsei, Aozora, Japan Post Bank, SBI), so the government bonds are bought by these domestic banks.

Also, Japan has never defaulted on foreign bonds in its history.

Even after the wars with China, the Russo-Japanese War, and the postwar period, Japan has shouldered large debts each time, yet has never defaulted—a country known for its strict financial discipline.

Therefore,the creditworthiness of foreign investors is very high, which is why the yen is bought in times of crisis..

Korea is an export-driven country, but there is a dilemma: if the won becomes too weak, repaying debt becomes difficult

Korea sustains itself through processing trade that imports raw materials and then adds high value to exports.Therefore, unlike in Japan, where a weak currency might be tolerable, in Korea it would be a fatal blow

Korea’s debt is

borrowed from foreigners.

Though national bonds pay interest,when the won weakens, the interest paid in dollars rises sharply.

The won is a currency that foreigners do not trust at all, unlike the Japanese yen,so it cannot be used for settlements when buying goods from abroad.

However, when the won weakens, since debt must be paid in dollars, Korea’s domestic economy falls into aDollar shortage.

With a dollar shortage,the ability to repay dollar-denominated debt and interest at maturity collapses,causing a default.

That is to say,a won decline creates a huge crisis for Korea.

When global信用 tightens, capital flows to the dollar—the historical trend

The dollar is the world’s dominant currency.

Therefore,when credit tightens worldwide due to stock market crashes, the strongest settlement currency, the dollar, is bought.

While Japanese people may not be aware because they benefit from the yen, globally after the war, only the yen and the mark strengthened against the dollar; the mark has since become the euro, so strictly speaking, it’s just the yen now.

【USD/JPY chart】

【USD/GBP chart】

【MXN/USD chart】

Source: https://finance-gfp.com/

Therefore,globally, when credit tightens, money flows into the dollar.
Because of this image, I actually thought that when looking at the dollar index, the won would weaken to a level where Korea could face bankruptcy..

From the movement of the dollar index, the expectation was that the USD-KRW would move to around 1280–1300

To read more,here