South Korea’s Lee Says Won Weakness Is Elevated but Temporary

South Korean President Lee Jae-myung said on June 8 that the recent rise in the won-dollar exchange rate is elevated but temporary. The won traded around 1,550 per dollar earlier in the day, after climbing sharply in recent sessions.

At a news conference at the presidential office marking his first year in office, Lee said it is difficult to set a target exchange rate, though there may be a level regarded as appropriate. “This does not look structural,” he said. “It should be viewed as temporary.”

Lee said foreign-exchange supply remains strong because of what he called an unprecedented current-account surplus. “Supply is ample,” he said. “That means there are many factors pushing the won lower.” Instability tied to tensions in the Middle East is also driving the exchange rate higher, he added.

Another factor is the rapid rise in South Korean stocks over a short period, Lee said. He said the share of Korean equities held by foreigners had risen by about 2 to 3 percentage points. For investment funds, that has left their South Korea weighting too large within their portfolios.

He gave the example of a fund with an internal guideline of 2.5% for South Korea exposure that had risen to 6% or 7%. That creates a need for internal rebalancing. Selling those holdings and converting the proceeds into dollars adds to demand in the foreign-exchange market, he said.

“In the short term, I think this is the biggest factor,” Lee said.

Still, he said the trend cannot continue indefinitely. “At some point, South Korea’s stock market will also find balance,” he said. He added that he did not know where that point would be, but said the broader direction could be gauged.

Kim Hyeong-gyu and Lee Esther, Hankyung.com reporters khk@hankyung.com