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South Korea's fixated weak won calls for a long-term policy reset SEOUL, December 09 (AJP) - South Korea is running out of quick fixes. With the local currency stuck in the band of 1,470 won per dollar for nearly a month and inflation pressures reawakening, economists say the country can no longer rely on ad-hoc tools, verbal interventions, or temporary tax cuts to stabilize forex. Instead, the entrenched weakness of the won is exposing the need for a fundamental, long-term overhaul of the nation’s macroeconomic, energy-import, and capital-flow policies. The won slipped below 1,470 won on Monday, presumably through interventionist hands. The currency has risen for five straight months—from an average of 1,366.95 won in June to 1,469.48 won in December, a 7.5 percent jump—enough to unsettle inflation that had only recently begun to stabilize. Already, the import price index spiked 1.9 percent in October, the fastest pace since January, pushing domestic supply prices up 0.9 percent. Consumer inflation, at 2.4 percent, risks drifting higher as companies face steeper dollar-denominated input costs and begin passing them on. The Bank of Korea and global investment banks now expect inflation to hover near or slightly above 2 percent next year. When a Weak Won Stops Being a “Phase” The deeper concern is that the weak-won environment may no longer be a passing cycle but the country’s new structural baseline. A Bank of Korea study estimates that if a 10 percentage-point depreciation persists for more than three months, annual inflation rises 1.61 percentage points—a hit that could dull any nascent recovery in private consumption. That emerging pattern is already visible at the small-business level. Even after government-backed spending coupons lifted third-quarter sales by 5.3 percent year-on-year, profits still fell 4.63 percent from the previous quarter because of elevated costs, according to KB Securities. “Domestic demand is improving, but inflation pressure is strengthening in parallel, weakening the elasticity of the recovery,” said economist Ryu Jin-i. She expects consumer prices to peak in the third quarter of next year, pushing the central bank into a difficult trade-off between growth and inflation. Policy Ambiguity Is Becoming Its Own Risk Markets say they cannot tell whether the government sees the won’s weakness as structural or temporary—and that uncertainty is beginning to carry its own costs. Standard verbal warnings about “excessive one-sided moves” have had virtually no effect, largely because foreign inflows remain tepid and dollar demand remains firm. A brief episode involving the National Pension Service’s (NPS) hedging strategy fueled further confusion. Officials suggested higher hedging ratios could stabilize the won by increasing demand for the currency, only to backtrack after public pushback over using pension assets for currency management. Deputy Prime Minister Koo Yun-cheol later stressed that the government had no intention of “mobilizing the pension fund as a temporary tool”—a clarification that left markets questioning the strategic coherence of the policy framework. Other inflation-containment tools—fuel tax cuts, emergency tariffs, and public-fee restraint—have been stretched to their limits. The country’s longest-standing fuel-tax reduction is still in effect. Tariff relief for grains and raw materials has been repeated so often its impact is fading. And public-utility price controls are hard to sustain if the weak-won trend continues. At a recent policy briefing, Presidential Policy Chief Kim Yong-beom outlined three priorities: encouraging the repatriation of Korean companies’ overseas profits, examining retail investors’ overseas investment risks, and reassessing the NPS’s hedging framework. Yet each carries structural tension—tax architecture, capital-market liberalization principles, and pension-fund fiduciary duty—that makes them difficult to execute swiftly. Structural Pressures Mount Behind the Scenes Economists warn that the country’s 40-month run of Korea–U.S. interest-rate inversion continues to siphon funds into higher-yielding foreign assets. “Intervening with ten billion dollars stabilizes the market for a day or two at most,” said Hansung University’s Kim Sang-bong. “These are not fundamental solutions.” Corporate hedging behavior also reflects the shift: currency-risk insurance purchases fell 32.7 percent in the first 11 months of the year, and plunged 45.8 percent in October alone—evidence that companies now see the high exchange rate as the new normal. Meanwhile, Korea’s heavy dependence on imported energy and food magnifies its exposure. A government plan to import 100 billion dollars of U.S. energy over four years diversifies away from the Middle East but raises transportation and logistics costs. Japan and China have aggressively pursued food-supply diversification; Korea’s efforts remain tentative by comparison. Even raw-material reserves are feeling the squeeze. The Public Procurement Service raised its nonferrous metal stockpiling budget to 80 billion won, but the same money now buys less because of rising global prices and the weaker currency. A Moment to Rebuild Fundamentals Although Korea’s current-account surplus—bolstered by a rebound in semiconductor exports—helps cushion capital outflows, economists emphasize that a long-term remedy lies not in patchwork interventions but in reinforcing macroeconomic fundamentals and improving the domestic investment environment. “Instead of relying on short-lived measures, it is time to redesign the policy framework from the ground up,” said Seoul National University economist Ahn Dong-hyun. “Korean companies are investing more abroad than they are reshoring. Regulatory improvements and a stronger domestic base are essential to reversing that trend.” For now, the won remains pinned near 1,470 won per dollar—an indicator not just of currency markets but of a broader strategic question: whether Korea’s policymakers can shift from crisis response to a durable, forward-looking policy architecture that prevents the weak-won, high-inflation cycle from becoming a structural feature of the economy. * This article, published by Aju Business Daily, was translated by AI and edited by AJP. December 9, 2025 07 -
Underperformance of KRW exposes fragility of economy overly exposed to USD and chips SEOUL, November 10 (AJP) - South Koreans involved in trade settlements or overseas spending may need to brace for the U.S. dollar staying above 1,400 won for an extended period, as structural vulnerabilities in the Korean economy and a strong preference for dollar-denominated assets continue to undermine the local currency. The dollar eased to 1,451.50 won on Monday after briefly topping 1,460 late last week — its highest since last April when the country grappled with the presidential impeachment process and tariff threats that escalated under U.S. President Donald Trump. Despite a broadly steady greenback, the Korean won lost nearly 2 percent last week, marking the steepest decline among major currencies. The dollar index edged up just 0.15 percent. The euro strengthened 0.23 percent against the dollar, the yen 0.33 percent, and the pound 0.11 percent. Even currencies that weakened — the Swiss franc (-0.10%), Swedish krona (-0.42%) and Canadian dollar (-0.14%) — fell far less than the won. The immediate catalyst for the won’s sharp slide was heavy foreign selling of Korean equities. Overseas investors offloaded 7.26 trillion won ($5.2 billion) worth of shares on the Korea Exchange between Nov. 3 and 7 — the largest weekly net outflow on record. The amount exceeded the entire October outflow of 5.34 trillion won and almost erased September’s 7.44 trillion won net inflow. The Kospi, which had broken above 4,200 earlier this month, quickly reversed as foreigners dumped chipmakers amid renewed concerns over an AI-driven overvaluation. The selloff added further downside pressure on the won. Another source of structural depreciation is Koreans’ powerful appetite for overseas securities. Between January and September, Korean residents invested $99.85 billion in foreign stocks and bonds — more than triple the $29.65 billion that foreigners poured into Korean securities. Although Korea posted a large current account surplus of $82.77 billion in the first nine months, outbound net assets — driven by direct and portfolio investment — reached $80.99 billion, nearly offsetting the surplus. The promise of government-driven direct investments in the U.S., capped at $20 billion annually as part of a bilateral trade deal, means further outflow. “It’s the substantial outflow of dollars for financial investment,” said Kwon Ah-min, a researcher at NH Investment & Securities. “That’s the only clear direct explanation, given that current-account and capital-market conditions are otherwise favorable.” She added: “The dollar globally is softening, the yuan is strong, and trade conditions are favorable — yet the dollar-won rate hasn’t dropped. That tells the story.” Kwon said a move toward the 1,500 level cannot be ruled out, though it is unlikely this year. “When the rate hit 1,485 earlier this year, Treasury yields were at 4.5 percent and tariff risk was higher. Now yields are more stable and the Fed tone is relatively dovish.” She noted that authorities would likely prevent a break above 1,500, using National Pension Service hedging bands around 1,470–1,480 and conducting smoothing operations if needed. Market consensus is divided on whether the pair will test 1,500 — but most agree that a return below 1,400 will be difficult. The forex market has stabilized somewhat on expectations that the 40-day U.S. federal government shutdown — the longest in history — may soon end. But the relief is likely temporary, analysts say, because the won’s fragility is rooted in Korea’s over-reliance on semiconductor exports and susceptibility to U.S.-driven tariff and policy risks. “It’s no longer a situation that can be controlled by domestic factors,” said Cho Yong-ku, an analyst at Shinyoung Securities. “Stabilization depends on the dollar index easing and foreign funds returning.” Cho added that a Fed rate cut, if it comes, could slow the pace of depreciation, but would not resolve structural vulnerabilities. November 10, 2025 1 -
KRW falls to weakest in 7 mo as forex data implies limited room for Seoul to defend currency SEOUL, November 05 (AJP) - The South Korean won’s recovery — fueled by the Korea-U.S. trade deal during APEC week and a bullish stock market — proved short-lived as the U.S. dollar climbed to a seven-month high amid renewed concerns over frothy AI-related stocks. The dollar hit 1,446.3 won on Wednesday, its strongest level since April, as foreign investors dumped more than 2 trillion won worth of KOSPI shares as of 2:00 p.m., dragging the benchmark index down more than 3 percent. While the heavy foreign profit-taking reflects the KOSPI’s staggering 70 percent gain so far this year, the upward pressure on the dollar-won exchange rate is largely driven by external factors — leaving Seoul with limited policy options. According to central bank data released Wednesday, South Korea’s foreign reserves stood at $429 billion at the end of October, up $6.8 billion from the previous month. It marked the sixth straight monthly increase and the highest level in 21 months, occurring despite verbal interventions aimed at curbing excessive bias toward a weaker won. The rise in reserves suggests authorities have refrained from deploying significant firepower to defend the currency. Foreign currency deposits increased $7.4 billion to $25.9 billion, supported by robust export performance. Exports in October climbed 3.6 percent year-on-year to a record $59.6 billion, with the cumulative trade surplus already surpassing last year’s total — a factor likely boosting foreign-currency deposits. Improved investment returns at domestic pension funds and financial institutions also contributed. The National Pension Service’s Investment Management Division reported an 8.6 percent return on its overseas equity portfolio — including major U.S. stock market holdings — from January through August. Globally, South Korea moved up one notch to ninth place in foreign-reserve rankings, overtaking Hong Kong, whose holdings fell by about $2.5 billion in October. Despite strong exports and a buoyant stock market, the won has remained weak after briefly strengthening to 1,430 per dollar following Seoul and Washington’s final agreement on payment terms for Korea’s $350 billion investment package last week. The dollar, which averaged 1,453.39 won in January, had eased to 1,364.66 won in June before rebounding to a monthly average of 1,431.17 won as of Nov. 4. According to Park Sang-hyun, researcher at iM Securities, the pressure largely reflects a renewed risk-off mood. “The chance of another rate cut at the January 2026 FOMC meeting is diminishing,” Park said. “Concerns over the financial instability of U.S. regional banks and the prolonged federal government shutdown have restricted liquidity flows, pushing the dollar higher.” Park added that the U.S. Supreme Court’s review of the cross-tariff legality case has further supported the dollar. The court began hearings Wednesday on a lawsuit filed by Democratic-led states and small-business associations challenging the legality of the mutual tariff framework. A ruling against the policy could invalidate the bilateral tariff agreement, dimming prospects for future rate cuts and bolstering the dollar’s strength. The launch of Prime Minister Takaichi Sanae’s new cabinet in Japan — which reaffirmed a policy stance favoring a weaker yen — also weighed on the won-yen pair. Since South Korea and Japan compete directly in key export markets and product categories, Seoul has little choice but to partially align its monetary stance with Tokyo’s to maintain competitiveness. November 5, 2025 14 -
Team Seoul back in Washington to settle a trade deal SEOUL, October 15 (AJP) -Senior South Korean government officials are back in Washington amid hints of progress in talks over a long-stalled trade deal that could reshape tariff policies and foreign exchange safeguards tied to a pledged $350 billion investment package. Presidential policy chief Kim Yong-beom and Industry Minister Kim Jung-kwan will join Trade Minister Yeo Han-koo in the U.S. capital this week to seek a breakthrough, as delays in negotiations have begun weighing on the economy—fueling forex market volatility, hampering trade and investment flows, and denting national credibility. A recent report by NICE Credit Rating estimated Hyundai Motor Group could face an additional annual burden of 8.4 trillion won ($6 billion) under the current 25 percent tariff rate, compared with the 15 percent levied on European and Japanese rivals. Finance Minister Koo Yun-cheol, already in Washington for the G20 Finance Ministers and Central Bank Governors Meeting and the IMF-World Bank Annual Meetings, plans to raise Seoul’s case directly with U.S. Treasury Secretary Scott Besant. Industry Minister Kim has been shuttling between Seoul and Washington for talks with U.S. Commerce Secretary Howard Lutnick and reported recent developments to the presidential office during the Chuseok holiday. The presidential office earlier this week hinted that Washington had shown “some response” to Seoul’s revised proposals on the investment package. Foreign Minister Cho Hyun told a legislative hearing on Monday that Washington was insisting on a $350 billion FDI commitment, rejecting loans or guarantees—a condition with major implications for Korea’s finances. Such an investment would account for more than 80 percent of Korea’s $420 billion foreign exchange reserves as of September. * This article, published by Aju Business Daily, was translated by AI and edited by AJP. October 15, 2025 13 -
Seoul and Washington edge closer on currency safeguard amid protracted tariff talks SEOUL, October 06 (AJP) - South Korean Trade Minister Kim Jung-kwan said Monday that Seoul and Washington have reached a "considerable level of understanding" on concerns over possible turbulence in South Korea's foreign exchange market caused by the ongoing tariff negotiations with the United States. Speaking to reporters at Incheon International Airport after returning from New York, Kim said both sides were "narrowing their differences" on how to minimize the deal's impact on the won-dollar exchange rate. "I believe there was a shared recognition of how sensitive our foreign exchange market could be in this deal," he said. According to the presidential office, Kim held a follow-up meeting on October 4 (local time) in New York with U.S. Commerce Secretary Howard Lutnick. The trip was arranged quietly and known to only a handful of senior aides. Kim played down speculation that it had been a secret mission, saying, "It just happened to take place during the holiday, and I had the time. I only met Secretary Lutnick." The minister's visit marks the latest in a series of negotiations aimed at finalizing the July framework agreement under which Washington would lower reciprocal tariffs on South Korean goods from 25 percent to 15 percent, while Seoul would commit to a 350 billion dollar (about 493 trillion won) investment package in the U.S. The two sides have yet to sign a memorandum of understanding, with disputes lingering over the investment's structure, profit-sharing arrangements, and South Korea's demand for a currency swap with the U.S. Federal Reserve to safeguard the won. Seoul has argued that without such a safety net, a large-scale dollar outflow could shake its financial markets. "There were discussions on the swap," Kim said. "It's not that progress was made, but both sides acknowledged how significant and sensitive this issue is for our market." Asked whether the swap could take the form of an unlimited facility, Kim said, "I don't know whether it will be unlimited, but there was a shared understanding that the deal itself poses a serious challenge for our currency market." He also said the two sides did not discuss specific investment targets or President Donald Trump's previous description of South Korea's contribution as an "upfront payment." "There were no such talks," he said. A recent survey by broadcaster SBS and polling firm Ipsos found that 88 percent of respondents viewed the U.S. investment demand as excessive, while 55 percent said the government was handling the negotiations properly. Financial markets have remained cautious amid the uncertainty. The KOSPI fell 2.45 percent last week to close at 3,386.03, slipping below the 3,400 mark for the first time in nine trading sessions. President Lee Jae Myung has warned that withdrawing the full investment amount without a swap arrangement could trigger a crisis similar to the 1997 Asian financial meltdown. Kim said follow-up meetings would likely take place "in the near future," possibly before President Trump's visit to South Korea for the Asia-Pacific Economic Cooperation (APEC) summit in Gyeongju later this month, where he is also expected to meet Chinese President Xi Jinping. Trump is scheduled to attend the ASEAN summit in Kuala Lumpur from October 26 to 28, hold a bilateral meeting with Japan's incoming Prime Minister Sanae Takaichi, who is expected to take office in mid-October, and then travel to South Korea around October 29 for the APEC meeting. Seoul aims to narrow differences ahead of the summit, though officials say the government will not compromise key principles in pursuit of a deal. October 6, 2025 08: