The South Korean won weakens "deviating from fundamentals"! The Governor of the Bank of Korea vows to defend exchange rate stability.

The Governor of the Bank of Korea, Lee Chanyong, stated that the recent weakening of the Korean won does not reflect the true strength of the Korean economy, and vowed to oppose any investment decisions that could threaten the stability of the foreign exchange market. Concerns about foreign capital outflows and the markets worry about additional U.S. investments (as part of tariff negotiations) potentially further exacerbating exchange rate pressures continue to weigh on the Korean won. Lee emphasized in his New Year speech on Friday, "Although it is difficult to define an exact and appropriate exchange rate level, the recent exchange rate of over 1400 won to the dollar clearly deviates significantly from the fundamentals of our economy." Lee also stressed that the $20 billion investment mentioned in the U.S.-Korea trade agreement is the maximum annual limit, and any investment decision will only be made on the condition of not disturbing the stability of the foreign exchange market. He said, "During this process, the Bank of Korea will work with the government and will not support any decision that may harm the stability of the foreign exchange market." As of the time of writing, the exchange rate of the U.S. dollar to the Korean won was reported at 1442.00. Before Lee Chanyong made the above statements, the South Korean authorities introduced a series of measures to support the local currency last week. At that time, the exchange rate of the U.S. dollar to the Korean won once approached the important psychological threshold of 1500. South Korean authorities stated last Wednesday that excessive weakness of the Korean won is not a good thing, and the foreign exchange market will soon see the government's "firm determination." The Bank of Korea and the South Korean Ministry of Economy and Finance jointly stated that meetings had been held several times in the past two weeks to discuss the recent weakening of the Korean won. The South Korean Ministry of Economy and Finance also announced that it would take various new tax measures to stabilize the foreign exchange market. Currently, South Korean authorities are doing their utmost to curb the depreciation of the Korean won, as a significant weakening of the Korean won could exacerbate the risk of import-driven inflation, accelerate capital outflows, and weaken foreign investors' confidence in the country's financial stability, potentially leading to a vicious cycle. South Korean authorities are easing foreign exchange controls to increase domestic dollar liquidity, seeking cooperation with major exporters, and stepping up efforts to alleviate the pressure from residents' overseas investment demand. Earlier in December last year, the Bank of Korea had signed a $65 billion foreign exchange swap agreement with the National Pension Service (NPS). The NPS had already started selling dollars to support the exchange rate of the Korean won. The Bank of Korea also decided to temporarily waive the foreign exchange stabilization tax for banks and other financial institutions from this month, and will pay interest on the statutory foreign exchange reserve deposits held by financial institutions. South Korean securities firms also decided to suspend new marketing activities for overseas stocks. The South Korean Ministry of Economy and Finance stated last Wednesday that it would launch a new tax incentive plan for repatriation investment accounts to encourage the return of overseas investment capital to the domestic market. According to the latest plan, South Korean individual investors will temporarily exempt income tax on the sale of overseas stocks if they convert the proceeds into Korean won and invest long-term in domestic stocks within a year. In addition, the South Korean government will support large securities firms in swiftly launching forward sales products aimed at individual investors, as many retail investors currently lack adequate foreign exchange risk management tools. The South Korean Ministry of Economy and Finance also stated that in order to reduce double taxation on dividends received by domestic parent companies from foreign subsidiaries, the government will raise the exclusion rate of dividend income from the current 95% to 100%. Furthermore, Lee Chanyong also added on Friday that inflation in South Korea may remain relatively stable in the new year, but warned that if the Korean won continues to weaken, upward pressure on inflation may increase. The Bank of Korea maintained the benchmark interest rate at 2.5% in late November last year and slightly raised its economic growth inflation expectations. It is expected to keep the interest rate unchanged at the next policy meeting on January 15th.