The trade surplus in the first half of this year hit a record high of $138.3 billion. At this pace, the annual trade surplus this year could reach three times the 2017 record high of $95.2 billion.
In the past, when a trade surplus occurred, the won–dollar exchange rate tended to fall. That was because the scale of dollars that export corporations brought home and converted into won was large.
But recently, even with the trade surplus at a record high, the exchange rate has been soaring, staying at its highest level since the 2009 global financial crisis. Why is this happening?
◇ Era where "record-largest trade surplus" coexists with "No. 2 in the world for currency depreciation"
So far this year, the won–dollar exchange rate has risen 8.1%. That much, the won's value has fallen. Over the same period, among the 40 major countries for which the Bank of Korea provides comparable daily exchange-rate statistics, exchange rates rose an average of 0.9%. The decline in the won's value was notably large.
The drop in the won's value was the second largest among the 40 countries, after Türkiye (8.7%). Among Asian countries, the currencies of Indonesia (6.9%), India (6.0%), Thailand (5.5%), the Philippines (4.8%), and Japan (4.2%) fell sharply. Taiwan fell only 1.9%.
This phenomenon—"record-largest trade surplus" alongside being "No. 2 in the world for currency depreciation"—differs from the past. In 2017, when the annual trade surplus was at a record high, exports also rose sharply thanks to the semiconductor supercycle. At that time, the won–dollar rate fell more than 10%, from the 1,200-won range to the 1,000-won range. And last year, when the semiconductor boom began, the trade surplus exceeded $70 billion and the exchange rate fell 2.3%.
◇ "Due to 'record-largest' net foreign selling and the 'lowest in 40 years' yen"
The coexistence this year of a record-largest trade surplus and a soaring won–dollar rate is being interpreted mainly as driven by heavy net foreign selling in Korea's stock market. A Finance Ministry official said, "The force of net foreign stock selling is overwhelming other factors." On the claim that export corporations are hoarding dollars overseas, the official said, "Export corporations are steadily supplying large volumes of dollar conversions." Regarding so-called "Seohak ants" investing in overseas stocks, the official added, "Domestic investors' overseas stock investments are increasing, but dollar exchanges themselves are not large," and "they appear to be using dollars already held."
According to the International Finance Center, net foreign selling of domestic stocks in the first half totaled 175 trillion won ($112.5 billion), a record high. That offsets 81% of the first-half trade surplus. In particular, foreigners are selling mainly large-cap semiconductor exporters such as Samsung Electronics and SK hynix. After strong share-price gains and with the won currently weak—and possibly weakening further—they appear to be taking profits. Large funds also rebalance to keep the weight of specific countries or corporations from becoming too large within portfolios.
At the same time, the yen's value against the dollar has fallen to its lowest in 40 years, fueling the won's weakness. Foreign investors tend to view Korea and Japan together as Asia's leading export-driven economies. When the dollar strengthens, risk-off sentiment rises, and they sell yen- and won-denominated assets together. In such cases, they usually sell more—and faster—the assets of Korea, an emerging market, than those of Japan, an advanced economy.
The yen–dollar rate climbed intraday to 161.98 yen on the 30th of last month, a record high since December 1986. The yen's value fell to its lowest in 40 years. It is trading in the 162-yen range today as well.
This degree of yen weakness stems from the outlook that the interest-rate gap with the United States will not narrow easily. The U.S. benchmark rate is 3.50%–3.75% annually, and although Japan raised its benchmark rate last month, it remains at 1% annually. The Japanese government's formulation of a supplementary budget to stimulate the economy is also a factor weakening the yen.
There are other factors behind the simultaneous weakness of the won and the yen. With both Korea and Japan set for large-scale investments in the United States, more investors are betting on weakness in the two countries' currencies. Kim Jeong-sik, a professor of economics at Yonsei University, said, "Korea and Japan have recently had lower economic growth rates than the United States, and the interest-rate gap is large," adding, "They also share the outlook for large-scale U.S.-bound investments, so currency values are falling together."