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Gov't may coordinate with National Pension Service to help stabilize won

Published: 14 Nov. 2025, 19:18 Updated: 16 Nov. 2025, 16:59

Deputy Prime Minister and Finance Minister Koo Yun-cheol, second from right, presides over a market stability meeting at the government complex in Jongno District, central Seoul, on Nov. 14. [MINISTRY OF ECONOMY AND FINANCE]

The government signaled on Friday that it may coordinate with the National Pension Service (NPS) to help stabilize the rising won-dollar exchange rate — a rare move that underscores growing concern over its continued volatility.

“There is growing uncertainty in the foreign exchange market,” Deputy Prime Minister and Finance Minister Koo Yun-cheol said during a market monitoring meeting. “A structural improvement in the foreign exchange supply and demand balance is needed.”

He continued, “Financial and foreign exchange authorities are closely analyzing the factors behind the increase in the exchange rate and will prepare stabilization measures by closely consulting with key market players, including the NPS and major exporters.”

While the NPS has occasionally played a stabilizing role in periods of high volatility, analysts interpret that the ministry's direct reference to the service acts as a strong form of verbal intervention.

The impact of Koo’s remarks was immediate. The won-dollar exchange rate, which had climbed to the mid-1,470s after the market opened — hitting an intraday high for the fourth consecutive session — reversed course after his comments were made public, with the exchange rate dipping more than 10 won ($0.01). The won-dollar exchange rate closed at 1,457.0, down 10.7 won from the end of the previous day's session.

“Koo’s direct reference to institutions capable of implementing stabilization measures delivered a strong message,” Seo Jeong-hun, a senior researcher at Hana Bank, said. “Despite persistent selling by foreign investors in the stock market, the won’s return to the 1,450 range shows the intervention had a notable effect.”

People line up at a currency exchange store in Myeongdong, central Seoul, on Nov. 14. [YONHAP]

Analysts point to rising overseas stock investments by individual Korean investors as a major factor behind the rise in the won-dollar exchange rate.

According to the Bank of Korea (BOK), Korean residents invested $99.85 billion in overseas securities from January to September this year, more than triple the $29.65 billion invested by foreigners in Korea over the same period. The capital outflow also exceeded the country’s current account surplus of $82.77 billion, suggesting more money is flowing out than in.

The central bank noted in a recent report that the rise in Korea’s net external assets could be contributing to the increase in the exchange rate. Net external assets — the difference between Koreans’ overseas investments and foreigners’ investments in Korea — surpassed $1 trillion for the first time in the fourth quarter of 2024. As of June this year, Korea’s net external assets were equivalent to 55 percent of its gross domestic product.

A financial market source noted that many exporters expect a further increase in the exchange rate and are delaying currency conversion, which could further bolster the rise.

The National Pension Service’s headquarters in Seodaemun District, western Seoul, as seen on March 20 [NEWS1]

If the won-dollar exchange rate increases beyond the fund’s internal predictions, the NPS could sell up to 15 percent of its foreign assets through forward contracts, effectively supplying dollars to the market. As of the end of August, the NPS held 771.3 trillion won in foreign assets.

Experts also suggest that expanding the foreign exchange swap line between the NPS and BOK could help curb the won’s decline. The pension fund typically buys dollars on the open market to finance overseas investments. However, if it can source those dollars directly from the BOK’s reserves, the demand for dollars in the foreign exchange market would decrease. The current swap agreement between the two institutions is capped at $65 billion and is set to expire at the end of the year.

Some market watchers have proposed going even further by having the NPS increase its domestic equity holdings through its tactical asset allocation mechanism. This would allow the fund to adjust asset allocations by up to 2 percentage points at its own discretion. If applied, the NPS could raise its domestic equity cap to 19.9 percent and purchase up to 30 trillion won in local stocks.

“Nothing specific has been decided yet regarding discussions with the NPS,” a Ministry of Economy and Finance official said, emphasizing that “the authorities are closely monitoring the volatility of the exchange rate.”

“With the U.S. Federal Reserve turning more hawkish and the Japanese yen-dollar exchange rate also on the rise, the won is likely to stay in the 1,400 range for the time being,” Seo said. “However, if the NPS begins to implement concrete currency hedging measures, the rise in the won-dollar exchange rate could be partially tempered.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY KIM YEON-JOO [[email protected]]