Asia FI & FX Strategy Watch: KRW at Crossroads - BoK, NPS and Local elections ahead

Research evidence excerpt

Asia FI & FX Strategy Watch: KRW at Crossroads - BoK, NPS and Local elections ahead

Korean Won at Crossroads

South Korea is approaching a dense and substantive two-week window. The Bank of

Korea convenes on May 28. This will be the same day the NPS meets to update its asset

allocation plans. Six days later, on June 3, the country holds its ninth nationwide local

elections. None of these events are, in isolation, seismic market moments. But coming-

back-to-back, against the backdrop of won that has lost close to 10% of its value against

the dollar over the past year and an economy caught between rising prices and softening

confidence, the sequence matters.

A KRW backdrop: strong external surplus, but FX still

vulnerable to flows and oil

Korea’s external balance looks strong on paper, but the currency remains vulnerable

because the current-account surplus is offset by overseas investment demand, portfolio-

flow pressures, and oil/import-price shocks. While Korea reported $37.33bn current-

account surplus in March 2026 driven by goods surplus and a surge in semiconductor

exports, financial-account also shows meaningful portfolio outflows. This is important

because a current-account surplus does not automatically translate into KRW strength if

spot FX is dominated by outbound equity investment or foreign equity outflows.

The oil channel is now the more immediate inflation risk. Korea’s import prices saw the

largest monthly increase since 1998 in March, influenced by elevating oil prices and KRW

weakness. This increase in import prices directly feeds into consumer prices which could

affect domestic consumer prices over the following one to three months.

Thus, Korea’s story is not unidirectional. On one hand, semi-conductor exports and