South Korea's won hits 26-year low as investors flee despite strong economy

South Korea’s currency, the won, has faced intense selling pressure in recent weeks. The exchange rate briefly surpassed 1,550 won per dollar in after-hours trading on Friday, marking its longest stretch above 1,500 won since the 1997 Asian financial crisis. Meanwhile, Japan has taken bold action, spending a record 11.7 trillion yen ($73.13 billion) to prop up its own currency, the yen. The won’s sharp decline comes despite South Korea’s strong economic fundamentals. Exports have hit record levels, and the country maintains a large current account surplus. Yet, both foreign and domestic investors continue to sell won and stockpile dollars, betting on further weakening.

Foreign investors have also pulled out of Korean stocks, anticipating falling prices. The sell-off mirrors patterns seen during the 1997 crisis, when the IMF found that speculative attacks on Asian currencies were driven by expectations of depreciation rather than economic weaknesses. The Bank of Korea’s governor has hinted at a possible interest rate hike in July. However, markets expect the US Federal Reserve to raise rates as well, keeping the interest rate gap unchanged. This leaves uncertainty about whether Korean authorities will step in more forcefully to stabilise the won. Japan’s aggressive intervention contrasts with South Korea’s more restrained approach. While Tokyo has spent billions to support the yen, Seoul’s response has been less decisive, raising questions about when and how it might act.

The won has now traded above 1,500 won per dollar for 26 days this year, nearing the duration of the 1997 crisis. With investors still selling the currency and authorities holding back on major intervention, the won’s weakness persists. The situation highlights the gap between Korea’s economic strength and the market forces driving its currency lower.