KRW recovers on jawboning and NPS hedging, Equities quiet pre-Xmas

Asia Market Update: KRW recovers on jawboning and NPS hedging; Equities quiet pre-Xmas; JP yield curve steepens as record FY26 bond issuance confirmed.

General trend and developments

- Korean Won recovered 1.6% to back November levels, engulfing all of December's falls to date and up from multi-month lows yesterday amid further warnings from South Korean officials of taking action “soon” to “stabilize the exchange rate”. Won continued to strengthen on reports the National Pension Service (NPS) was engaging in hedging operations.

- [Other measures were also announced; To introduce tax incentives to help stabilize FX; To raise div income exemption for overseas units; To increase tax benefits on corporate earnings repatriated from abroad; To offer tax benefits for retail investors hedging FX; To exempt capital gains taxes for retail investors selling overseas stocks to invest back home].

- Outside of Won and Yuan, USD saw a bit of a bid as the Asia session continued, particularly against EUR, GBP and to a lesser extent JPY. No specific driver, but worth noting that hot US GDP growth Q4 of 4.3% was a full 1.0% above expectations, with personal consumption 3.5% v 2.7%.

- Asian equities mixed and overall little changed in quiet pre-Christmas trading with reduced liquidity.

- Various China-related news:

1) USTR announced an 18-month delay on higher chip tariffs for China until June 2027.

2) US Dept of Defense reported to Congress that China’s PLA continues to refine options to force Taiwan unification and that China’s military buildup makes US increasingly vulnerable.

3) Blackrock said to be considering walking away from $23B Panama ports deal due to Cosco / China’s demand for majority stake

4) Amid continued strong build out of data centers and ‘new industry’ production November power consumption in China up another 6%, on top of October’s 10% increase.

5) China PBOC kept setting a stronger Yuan fix, with CNH remaining in the 7.01 handle.

- Japanese yields in the belly and longer-end turned around from initially lower rates to steepen on the day. Notably, the turn happened to coincide with the confirmation of ¥29.6T in new bond issuance for debt servicing costs for FY26, a new record for Japan.

- BOJ outrights saw demand to sell >25 year JGBs by institutions almost 4x more than was accepted by the BOJ, while 3-5 year series also saw demand to sell of around 3x than what the BOJ bought.

- Bank of Japan OIS chances of a further rate hike by April, 2026 fell to 32.5% vs 39.5% the day before, while chances of a hike by June, 2026 fell to 57.0% vs 66.5% the day before.

- Japan PPI prices for November were inline.

- BOJ Oct Policy Meeting Minutes (two minutes ago reiterated to keep raising rates if economic and price forecasts materialize. However, one member pointed out that Japan's policy interest rate was lower than the neutral rate, unlike in the US and Europe and that it was possible that financial and capital markets, such as the stock market, would become unstable.

** Note: Holiday-shortened week for Xmas, Boxing Day will see a short week for the Americas, Europe and parts of Asia, with lower liquidity. Asian markets trading normally all this week including Japan, China, Taiwan, Vietnam, with countries such as Malaysia, Philippines, Singapore and South Korea are in holiday for only Christmas Day (Thurs, Dec 25th).

- US equity FUTs -0.1% during Asian trading.

Looking ahead (Asian-weighted focus, using Asian time zone)

- Mon Dec 22nd to Sat Dec 27th (Beijing): China NPC Standing Committee 19th Session, with key discussions on national development planning, environmental codes and childcare expected.

- Thu Dec 25th JP Nov Housing Starts.

- Fri Dec 26th JP Nov Unemployment, JP Nov Industrial Production, JP Nov Retail Sales.

Holidays in Asia this week

- Wed Dec 24th Early market closes for Australia, New Zealand, UK, US.

- Thu Dec 25th Australia, Hong Kong, Indonesia, Malaysia, New Zealand, Philippines, Singapore, South Korea, UK, US.

- Fri Dec 26th Australia, Hong Kong, Indonesia, New Zealand, UK, US.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens -0.3% at 8,773.

China/Hong Kong

- Hang Seng opens flat at 25,780; Shanghai Composite opens flat at 3,920.

- USTR announces 18-month delay on higher chip tariffs for China: To impose additional tariffs on Chinese semiconductors, but action will be delayed until June 2027 - USTR filing in Federal Register.

- USTR Greer: Happy to have trade with China in non-sensitive areas.

- China Nov Power Consumption +6.2% y/y (v +10.4% m/m).

- (US) DoD releases annual report to Congress on military and security developments involving China; PLA continues to refine options to force Taiwan unification; China military buildup makes US increasingly vulnerable.

- US Pentagon: China accelerating quantum technology as a 'key' to future warfare (update).

- Blackrock said to be considering walking away from $23B Panama ports deal due to Cosco demand for majority stake – FT [overnight update].

- WTO: China initiates dispute regarding Indian measures on solar cells and models and IT goods [overnight update].

- China PBOC sets Yuan reference rate: 7.0471 v 7.0523 prior (strongest level since Sept 30th, 2024).

- China PBOC Open Market Operation (OMO): Injects CNY26B in 7-day Reverse Repos; Net drains CNY21B v drains CNY76B prior.

Japan

- Nikkei 225 opens +0.1% at 50,475.

- Japan Nov PPI Services Y/Y: 2.7% v 2.7%e.

- BOJ releases Oct Policy Meeting Minutes: Reiterates agreed the central bank will continue to raise rates, if economic and price forecasts materialize.

- Follow up: Japan's debt servicing costs next year (FY26) set to reach record (with ~¥29.6T of new bonds issuance) - NHK- Reportedly there is a slim chance the BOJ could hike rates again as soon as April 2026; Also, former BOJ Exec Dir Otani expects the central bank to raise rates in July 2026 - US financial press (overnight update).

- BOJ Outright Bond Purchase Operation for 3~5 Years; 5~10 Years, 10~25 Years, >25 Years and inflation-linked bonds; (Amounts inline with prior purchases).

Korea

- Kospi opens +0.5% at 4,136.

- South Korea Dec Consumer Confidence: 109.9 v 112.4 prior.

- USD/KRW Korean Won recovers +1.6% to 1,456/USD [back to Nov levels] after officials' jawboning and NPS FX hedging intervention.

- SOUTH KOREA NPS (NATIONAL PENSION SERVICE) CONDUCTING STRATEGIC FX HEDGING OPS - press, citing sources.

- South Korea FX Authorities: Reiterates excessive Korean Won (KRW) weakness not desirable; said to 'warn' FX players will 'soon' see government's 'strong' resolution.

- South Korea Presidential Policy Chief: Will be taking action to stabilize exchange rate – Press.

- South Korea Finance Ministry: To introduce tax incentives to help stabilize FX; To raise div income exemption for overseas units - financial press

- South Korea plans to invest KRW700B into 'AI transformation' for manufacturing sector in 2026 – Yonhap.

- South President Advisor: Says no plan to produce highly enriched uranium.

- South Korea Finance Ministry: To extend the fuel tax cut through Feb 2026; auto sales tax cut to be extended through Jun 2026.

- Bank of Korea (BOK): Risk factors in Seoul housing market have grown to all-time highs - financial press (overnight update).

Other Asia

- Philippines Nov Budget Balance (PHP): -157.6B v +11.2B prior [overnight update].

- Thailand Central Bank (BOT) Gov Vitai, Finance Ministry; Baht currency rising faster than regional peers; No plans to impose drastic measures on capital movement - joint briefing on baht (THB) [overnight update].

- TAIWAN NOV EXPORT ORDERS Y/Y: 39.5% V 31.7%E (fastest growth since 2021) [overnight update].

North America

- (US) Trump Admin H-1B visa fee of $100K upheld by Judge, rejecting challenge by US Chamber of Commerce – press.

- Apple provides update on age requirements for apps distributed in Texas: To monitor ongoing legal process and pause previously announced implementation plans.

- (US) ADP Preliminary Employment Change for 4-weeks ending Dec 5th: +11.5K v +17.5K prior; Notes hiring remained in positive territory for a third week.

- (US) OCT PRELIMINARY DURABLE GOODS ORDERS: -2.2% V -1.5%E; DURABLES (EX-TRANSPORTATION): 0.2% V 0.3%E.

- (US) Q3 GDP ANNUALIZED Q/Q: 4.3% V 3.3%E; PERSONAL CONSUMPTION: 3.5% V 2.7%E.

- (US) Q3 GDP PRICE INDEX: 3.8% V 2.7%E; CORE PRICE INDEX: 2.9% V 2.9%E.

- (US) Dec Philadelphia Fed Non-Manufacturing Activity: -16.8 v -15.0e; New Orders: 3.2 v 6.6 prior; Prices Paid: 40.3 v 34.7 prior.

- (US) DEC CONSUMER CONFIDENCE: 89.1 V 91.0E; Those saying jobs are "hard to get": 20.1% v 17.9% prior.

- (US) DEC RICHMOND FED MANUFACTURING INDEX: -7 V -10E; Business conditions -11 v -9e; Volume of new orders: -8 v -22 prior.

-(US) TREASURY $70B 5-YEAR NOTE AUCTION DRAWS 3.747% V 3.562% PRIOR, BTC 2.35 V 2.41 PRIOR AND 2.39 OVER THE LAST 12 AUCTIONS.

-(US) Atlanta Fed GDPNow: Initial estimate for Q4 GDP at 3.0%.

-(CA) Bank of Canada (BOC) Summary of Deliberations: Difficult to predict whether the next move is a hike or cut; BOC officials agreed that it's unclear what the next rate move will be.

- V (US) Visa: Preliminary data shows that overall holiday retail spending increased 4.2% y/y across all payment types, including cash and check; In‑store sales led seasonal spending, capturing 73% of total spending.

Europe

- (EU) ECB's Stournaras (Greece): Need to preserve optionality.

- (IT) Italy Senate said to approve 2026 budget law.

Levels as of 01:20 ET

- Nikkei 225 -0.2%; ASX 200 -0.4%; Hang Seng +0.2%; Shanghai Composite +0.4%; Kospi -0.1%.

- Equity S&P500 Futures -0.1%; Nasdaq100 -0.1%; DAX flat; FTSE100 -0.1%.

- EUR 1.1786.118.08; JPY 155.56-156.28; AUD 0.6698-0.6714; NZD 0.5834-5854.

- Gold +0.3% at $4,520/oz; BTC -0.7% at $87,232; Crude Oil +0.2% at $58.50/bbl; Copper +0.2% at $5.5933/lb.