US 10-Year Treasury Yield Surpasses 5%, AI Industry Cost Increases and Yen Carry Trade Variables (Dr. Gwak Su-jong)

As US 10-year Treasury yields show a trend of exceeding 5%, analyses have been raised regarding the impact this will have on the global industrial structure and the economies of major countries. Through the YouTube channel 'Economics Master Gwak Su-jong', Dr. Gwak Su-jong explained the antecedent and consequent meanings of the rise in US Treasury yields, the possibility of the unwinding of Japan's Yen carry trade, and the ripple effects on the South Korean economy.

The antecedent meaning of US Treasury yields surpassing 5% and the capital demand of the AI industry

According to Dr. Gwak Su-jong, the antecedent meaning of rising long-term Treasury yields is a signal to economic agents that 'money is needed' and an indicator representing changes in industrial structure. In the video, the massive capital demand of the AI industry was cited as one of the reasons for the rise in 10-year Treasury yields. The explanation is that it is linked to the rising costs of Hyper-scalers leading the AI industry. In other words, he analyzed that the rise in interest rates suggests a situation where the AI industry must continuously secure massive funds for the next 5 to 10 years, which is also connected to the process of securing power for global standards and rule-setting.

Furthermore, the rise in interest rates also affects mortgage rates. He mentioned that if interest rates rise above a certain level, the housing construction industry could contract, which could become a factor hindering the growth of the domestic economy, including the service sector. Dr. Gwak mentioned the situation where the US government provides a yield level of around 5.25% on 10-year Treasury bonds, explaining that this implies that economic growth will continue in the long term while simultaneously meaning that risk factors coexist.

The dynamic relationship between the Yen carry trade and Japan's interest rate policy

The rise in US Treasury yields also has a close correlation with Japan's interest rate policy and the Yen carry trade. Dr. Gwak Su-jong analyzed that the rise in US interest rates could put pressure on the speed of Japan's interest rate hikes. In a situation where Japan intends to raise interest rates, if the United States raises interest rates at a rapid pace, the dynamic relationship between the value of the Yen and interest rates changes. In particular, he explained that if the weakness of the Yen continues and then the exchange rate begins to fluctuate, a 'deleveraging' phenomenon may occur where investors who engaged in the Yen carry trade withdraw funds from the United States to repay their debts.

In this process, the price competitiveness of Japanese manufactured goods changes, which is also linked to South Korea's export competitiveness. Dr. Gwak pointed out that if the value of the Japanese Yen rises, South Korea's manufacturing sectors, such as automobiles, could fall behind Japan in terms of price competitiveness, and said that the rise in US Treasury yields will serve as an important barometer for the interest rate and exchange rate policies of South Korea and Japan.

Risks to the South Korean economy and the importance of macroeconomic policy

Finally, Dr. Gwak Su-jong warned of the possibility of a crisis facing the South Korean economy. Despite the rise in US Treasury yields inducing a strong dollar, he raised issues regarding the reliability of South Korea's macroeconomic policy, mentioning phenomena such as the South Korean Won exchange rate remaining at a certain level. In particular, he analyzed that in a situation where South Korea's household debt reaches 2,000 trillion won, fluctuations in interest rates could combine with the problem of non-performing loans to intensify the economic crisis.

Dr. Gwak emphasized that the phenomenon of US 10-year Treasury yields exceeding 5% could be a precursor to economic flows that affect the next 5-year periods, beyond being a simple inflation indicator. He suggested that investors should pay attention not only to the 10-year bonds but also to the 30-year (long-term) and 3-year (short-term) Treasury yields, and should consider the direction of the South Korean economy's response through the correlation between US Treasury yields and the Yen carry trade.