Key Facts
• In late 2025, South Korean government implemented measures to curb won depreciation.
• Market expects 1 USD = 1400 won as the new normal exchange rate.
• Government’s measures included capital gains tax cuts for returning overseas investors.
• Also introduced tax exemptions on dividends from overseas subsidiaries and eased foreign exchange regulations.
• Exchange rate briefly fell to 1430 won but experts see this as temporary.
• IBK Securities analyst cites structural factors pushing exchange rate higher.
• 12 major global banks forecast 3-month average at 1440 won/USD, 6-month at 1426 won/USD.
• IMF’s estimated appropriate rate is 1330 won, over 100 won lower than forecasts.
• A 10% won depreciation raises consumer prices by about 0.3 percentage points.
• Bloomberg survey median inflation forecast for 2026 raised to 2.0%.
• Bank of Korea warns inflation could reach 2.3% if won stays near 1400 won/USD.
• Limited room for interest rate cuts may prolong debt burdens on households and small businesses.
• Consumption slowdown risks a “consumer cliff” impacting SMEs and self-employed.
• Bank of Korea Governor Lee Chang-yong warns won depreciation deepens export-domestic demand gap and social polarization.
Summary
In 2026, South Korea faces its greatest economic risk from a weak won, with the exchange rate stabilizing around 1400 won per US dollar despite government interventions. The government’s late 2025 measures, including tax incentives and regulatory easing, temporarily eased depreciation but structural factors such as fixed US-Korea interest rate differentials and trade shifts sustain high exchange rates. Major global banks predict continued won weakness well above the IMF’s appropriate level. This depreciation increases import costs, pushing up consumer prices and limiting the Bank of Korea’s ability to cut interest rates. The resulting inflationary pressure and higher debt burdens threaten domestic demand recovery, risking a vicious cycle of economic stagnation. Bank of Korea Governor Lee Chang-yong highlights the risk of widening gaps between exports and domestic demand, warning of increased social polarization. The situation underscores the complex challenges South Korea must navigate to stabilize its currency and economy in 2026.
