KOSPI Takes a Break During Lunar New Year... "Strategy Change After Monitoring US-Japan Monetary Policies" [Weekly Outlook]

This week (27th-31st), the domestic stock market will open for just one day on the 31st due to the Lunar New Year holiday and a temporary holiday. Securities firms advise setting investment strategies after monitoring events that could increase volatility, such as the monetary policy decision meetings of the United States and Japan, and the earnings announcements of major big tech companies.

According to the Korea Exchange on the 26th, the KOSPI index closed at 2536.8 on the last trading day of last week, the 24th, up 0.85% from the previous day. While caution ahead of the Lunar New Year holiday and profit-taking limited the upper range of the index, the absence of the radical tariff policy feared after the inauguration of US President Donald Trump supported the lower range of the stock market.

Experts predict that the global financial market this week will gradually move away from Trump's influence and focus on financial market events such as the monetary policy meetings of the United States and Japan.

First, the Bank of Japan (BOJ) raised its policy interest rate by 0.25 percentage points from the current 0.25% to 0.5% at the monetary policy decision meeting held on the 24th. It is the first time in 17 years that Japan's policy interest rate has reached 0.5%. The background of this policy rate increase is attributed to the consensus that inflation must be controlled to restore household purchasing power in the Japanese economy, where signs of economic contraction are appearing.

Last year, concerns about the 'yen carry trade liquidation' arose with the BOJ's rate hike in July, leading to the 'Black Monday' on August 5th, but no significant fluctuations were observed in domestic and international stock markets.

The BOJ unexpectedly raised the benchmark interest rate from 0.1% to 0.25% on July 31st last year, causing a global stock market crash. On August 2nd, the KOSPI index fell by 3.65%, and on the next trading day, the 5th, it plummeted by 8.77%. On that day alone, the market capitalization of KOSPI evaporated by 192 trillion won.

At the time, it was analyzed that the fear that the prices of various assets could fall as investors who had borrowed cheap yen to invest in overseas assets massively withdrew their investments as the value of the yen rose, fueled the stock market crash. The Bank of Korea estimates the balance of yen carry trade at 506 trillion 60 billion yen.

However, unlike last year, this BOJ rate hike came as expected by the market, so there was no stock market turmoil like last time. Kim Hwan, a researcher at NH Investment & Securities, said, "The speed of narrowing the US-Japan interest rate gap is slow, and most of the yen carry trade seems to have been liquidated last year, so there will be no major confusion."

The US Federal Open Market Committee (FOMC) meeting on the 30th, local time, is also an event to watch. According to the Chicago Mercantile Exchange (CME) FedWatch Tool, the probability of the US Federal Reserve's interest rate 'freeze' is currently expected to be 99%. This is because the January inflation index fell short of expectations, easing concerns about an inflation rebound.

However, US President Donald Trump is urging a rate cut ahead of the January FOMC.

President Trump said in a video speech at the World Economic Forum (WEF) on the 24th, "I will ask Saudi Arabia and the Organization of the Petroleum Exporting Countries (OPEC) to lower oil prices." He also said, "As oil prices fall, I will demand an immediate rate cut. Likewise, interest rates around the world should fall. They should follow us down."

Lee Kyung-min, a researcher at Daishin Securities, said, "The consensus (average expectation) for a rate cut this year, reflected in the current market, is still one time, which is more hawkish than the Fed's dot plot (two times). Considering that the hawkish stance of the December FOMC was pre-reflected, the market impact of this rate decision is expected to be limited."

This week, the earnings announcements of major US tech companies are scheduled, which could affect the domestic stock market. Starting with Microsoft on the 30th, the earnings announcements of Meta, Tesla, Qualcomm, Apple, and Amazon are scheduled for this week.

Researcher Lee said, "With policy uncertainty eased due to Trump's inauguration, whether big tech companies' investment plans are maintained will be a key interest. It is highly likely that the investment stance will be maintained according to the Trump administration's investment support policies, such as data centers."

Jungdong Noh, Hankyung.com reporter dong2@hankyung.com