[Exchange Rate Fluctuations, A New Paradigm]②Where Is It Headed Next... Drivers of Won Direction and Market Sentiment

Most Experts Expect the 1,300-Won Range to Continue in Q4

Export Scale and Continued Corporate Dollar Conversion Are Critical

How Long Will the Weak Dollar Trend Last?

All Eyes on US and Japan Rate Hikes


Overseas Investment by Companies and Individuals Is a Structural Trend

After the Semiconductor Cycle: Concerns Rise Over Net Dollar Outflows

Experts generally agree that the won-dollar exchange rate, which recently dropped to 1,330 won, will continue to trend lower in the short term. The main factors expected to determine the direction of the dollar through the end of the year include the possibility and timing of interest rate hikes in the United States and Japan, the scale of Korea's exports, and whether exporters will continue to convert dollars to won.

However, analysts note that, although the current semiconductor-driven "dollar influx boom" has masked it, structural pressures driving up demand for dollars are becoming entrenched. They warn that once the current super boom subsides, burdens from net dollar outflows, such as overseas direct investment by domestic companies and individuals’ overseas investments, may become more prominent again.

Focus Remains on the 1,300-Won Level in Q4... US-Japan Rate Trends and Export Scale Are Key

On September 10, a summary of projections by exchange rate experts at the four major banks (KB Kookmin, Shinhan, Hana, and Woori Bank) indicated that the won-dollar exchange rate is expected to remain in the 1,300-won range through the end of this year. They anticipate the Q3 average to be between 1,385 and 1,430 won, with a further drop to 1,360-1,400 won projected in the fourth quarter.

The crucial variable is whether exporters, including semiconductor companies that have led recent declines in the exchange rate, will continue their large-scale dollar selling. Supported by unprecedented trade surpluses, export companies have been converting their dollar earnings into won and expanding currency hedges, which has been a key factor driving the won’s appreciation. The steady dollar selling by exporters has influenced investor sentiment, strengthening short positions (bets on further price declines) and overwhelming other upward pressures on the exchange rate.

The question now is whether the policy of exchanging dollars for won will continue, even though the exchange rate has already declined to 1,330 won. In the market, there are mixed views—some expect that beyond mechanical selling by large companies, demand for currency conversion to fund domestic investments and quarterly dividend payments will persist; others point out that lower exchange rates could reduce the amount of dollars being sold. Hwan Yeol Im, a researcher at Woori Bank, said, "Recently, it is clear that exporters are paying close attention to the exchange rate level. The perception of holding on to dollars is strengthening." He added, "Even if there is some reduction in selling, any increase in the trade surplus could offset the impact."

Market participants are also closely watching how long the persistent weak dollar trend will last. Dollar weakness, triggered by concerns over the US fiscal deficit, has deepened further as the yen—second only to the euro in the dollar index weighting—has appreciated. The upcoming interest rate decisions by the US and Japan, scheduled for next week, are seen as key indicators of the dollar’s future path. The US Federal Open Market Committee (FOMC) will make its announcement on the 16th (local time), while the Bank of Japan (BOJ) will announce its rate decision on the 18th.

Junghee Moon, Chief Economist at KB Kookmin Bank, said, "There is a 50-50 chance of a rate hold or hike in the US according to the current market consensus, while a rate hike in Japan appears almost certain. If the US holds and Japan signals a big step (a 0.5 percentage point increase) or further hikes, the won-dollar exchange rate could fall as low as 1,320 won."

However, the fact that international oil prices are nearing $100 per barrel again due to instability in the Middle East is seen as a factor that could limit further declines in the exchange rate. Yoojung Lee, a researcher at Hana Bank, commented, "Despite robust economic growth in Korea supporting the fundamentals of the won, domestic and external conditions remain unstable for a significant further drop in the exchange rate." She added, "With both war and oil prices uncertain, they could pose risks at any time." Other factors supporting the lower bound for the exchange rate include the end of the National Pension Service’s strategic currency hedging as well as a new demand for currency conversion, estimated at up to $10 billion, arising from Samsung Electronics’ announcement of a special dividend payment.

After the Unusual 'Dollar Boom' Fades... Entrenched Overseas Investment Could Underscore Won Weakness

While the impact on exchange rates from the semiconductor-led export boom remains substantial, attention is turning to what will happen after the semiconductor cycle. The key question is whether the strong fundamentals for the won can be maintained once the current, extraordinary 'dollar inflow' boom ends. Experts point out that, if only structural variables are considered—excluding temporary, short-term factors—the conditions could actually intensify the pressure for dollar demand. Once the semiconductor cycle ends, entrenched trends in overseas investment may again highlight the won’s weakness.

Although overshadowed by the record-breaking export boom, overseas investment by Korean companies and individuals has steadily increased. Notably, securities investment overseas more than doubled in just one year, rising from $67 billion in 2024 to $140.3 billion last year. As a result, the ratio of securities investment to GDP also rose from 3.6% to 7.5%. Last year’s total exceeded Japan’s $102.8 billion by a wide margin. Researcher Im explained, "Korean companies are also continuing their plans for building overseas factories, so the net overseas direct investment (FDI) outflow has continued since last year." Accordingly, Korea’s external financial assets, which exceeded $2 trillion in 2021, have continued to expand, reaching $3.8425 trillion in the second quarter of 2026.

The problem is that these trends are becoming structurally entrenched. The Korea Development Institute (KDI) has pointed out that Korea is increasingly resembling Japan, where overseas investment has risen due to declining productivity from accelerated aging. The International Monetary Fund (IMF) forecasts that, owing to expanding surpluses in investment income, the share of primary income in Korea’s current account will rise from 23% in 2025 to 42% in 2030.

Im stated, "Structurally, dollars are continuing to flow out. In the long term, structurally strong dollar demand pressure could once again weaken the won." Lee also noted, "The ongoing increase in overseas investment by domestic investors could arise as a supply-demand risk at any time."

This content was produced with the assistance of AI translation services.