SEOUL, January 22 (AJP) - Alongside South Korea’s blistering equity rally, the foreign-exchange market has emerged as the economy’s most sensitive fault line, dominating monetary policy briefings and even the president’s New Year’s press conference.
From U.S. Treasury Secretary Scott Bessent’s remark that the won’s level is “not in line with Korea’s strong economic fundamentals,” to Bank of Korea Governor Rhee Chang-yong’s blunt assertion that the currency’s slide has been “excessive,” policymakers have adopted unusually direct language to deter one-sided bets that could distort trade conditions and undermine financial stability.
President Lee Jae Myung joined the verbal defense in a televised New Year’s news conference — and went a step further. What stirred markets was a rare attempt to sketch a future trading range for the won.
Citing compound external factors behind the currency’s weakness, Lee said that if the won were to track the Japanese yen closely, it would be trading near 1,600 per dollar. He then predicted that the won would stabilize around 1,400 within one or two months, without elaborating on the basis for the forecast.
The comment abruptly halted short positions and triggered a reversal, pulling the won back from near 1,480 to below 1,470. As of Thursday, the dollar was quoted at 1,469.30.
Earlier on Thursday, Governor Rhee reinforced the message with his own forceful verbal intervention at an AI conference co-hosted with Naver.
“By any objective measure, the dollar-won exchange rate is too high and has ample room for adjustment,” he said.
Where does the confidence come from?
Some point to the roaring stock market, with the KOSPI briefly breaching the 5,000-point threshold — a level increasingly discussed as a symbolic gateway toward eventual MSCI developed-market status.
Others focus on the bond market. South Korean sovereign debt is set to enter the World Government Bond Index (WGBI) in stages from April through November.
WGBI inclusion requires a minimum maturity of one year, excluding short-term debt entirely. More importantly, the index’s credibility attracts long-duration capital: its average holding period is about 9.6 years, far longer than that of most global bond benchmarks. Longer duration typically translates into lower volatility and higher perceived credit quality.
With inclusion beginning in April — precisely one to two months from now — President Lee’s timeline has not gone unnoticed.
“As the government expects capital inflows of $50 billion or more from WGBI inclusion, it likely views this as a key catalyst for won appreciation,” said a foreign-exchange trader, speaking on condition of anonymity.
Potential inclusion in the MSCI Developed Markets (DM) Index is also viewed as a strategic defensive line.
If upgraded, South Korea would likely carry a weight of around 2 percent, potentially drawing between $250 billion and $350 billion in inflows. Crucially, DM capital is “sticky”: funds typically remain invested for five to ten years, compared with roughly three years for emerging-market flows. That durability helps dampen capital flight and stabilize the exchange rate.
“DM inclusion would anchor capital flows and enhance Korea’s international credibility, which would be supportive for the won,” said Kim Jong-young, a researcher at NH Investment & Securities.
Still, few expect an immediate boost. South Korea must first be placed on MSCI’s watch list this June and maintain that status for at least a year. Realistic inclusion is widely seen as a 2028 story at the earliest.
Temporary relief from delayed U.S. investment
Another theory circulating in markets is that the government may be implicitly defending the won by slowing the execution of a $350 billion investment package promised to the United States during tariff negotiations. The package includes $200 billion in direct investment and $150 billion in shipbuilding cooperation.
Deputy Prime Minister and Finance Minister Koo Yun-cheol hinted at such delays in an interview with Reuters last Friday.
“It will be difficult to execute major investments in the U.S. during the first half of this year,” Koo said, adding that “given current foreign-exchange market conditions, it is unlikely that these investments will materialize within the year.”
Whether President Lee and Governor Rhee had this specific lever in mind remains unclear.
“The remarks likely refer to measures such as Repatriation Incentive Accounts (RIA), but as Minister Koo noted, deploying U.S. investment funds within the first half appears difficult,” a Ministry of Economy and Finance official said, requesting anonymity.
The comments follow an earlier signal of “pace adjustment” from Trade Minister Kim Jung-kwan on Nov. 14, when he clarified: “The commitment was to proceed with investments by January 2029 — not necessarily to disburse the full amount by then.”
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