Stronger Won Would Ease Inequality, Experts Say

South Korea's won-dollar exchange rate has swung wildly this year. Starting the year at 1,441.8 won per dollar, it climbed to a yearly high of 1,555.8 won on July 2, then fell to a yearly low of 1,336.1 won just two months later on Sept. 9. The rate has since rebounded as tensions in the Middle East escalated again and the United States raised interest rates for the first time in three years and two months, closing at 1,383.3 won in daytime trading on the 18th.

The swings have intensified debate over what level is appropriate. At one point, some forecast that rates above 1,500 won per dollar should be treated as the new normal. After the rate plunged — meaning a stronger won — concerns shifted to the possibility that semiconductor exporters would see earnings decline.

An urgent survey of 20 foreign exchange experts conducted by The Seoul Economic Daily on the 20th found broad support for a stronger won. Respondents judged that a decline in the exchange rate to the low 1,300-won range would be more favorable for price stability and a recovery in domestic demand. Experts noted that with high oil prices likely to persist for some time, a stronger won can lower import prices and energy costs while lifting households' real purchasing power. They projected that the U.S. 10-year Treasury yield, which has been rattling global financial markets, would become a significant risk to the Korean economy once it rises above 5.5%.

Price stability and reduced inequality were cited as the biggest benefits of a stronger won. Jung Yong-taek, head of the research center at IBK Investment & Securities, said, "A high exchange rate worsens inequality, while a falling exchange rate has the effect of easing it." Experts assessed that because semiconductors and other key export items remain competitive, the export burden from a stronger won is more limited than in the past.

Park Hyung-joong, an economist at Woori Bank, said, "In the short term, 1,380 to 1,420 won is appropriate, and over the medium to long term, the high 1,200-won to low 1,300-won range." By contrast, a foreign exchange dealer at a commercial bank said, "Below 1,300 won, exporters' price competitiveness could be somewhat eroded," warning that an excessively strong won could itself become a risk.

Experts agreed, however, that sharp volatility may pose a greater danger than the level of the exchange rate itself. They noted that the rate's plunge from the mid-1,500-won range to the low 1,300-won range, followed by a rebound, has created excessive uncertainty for corporate currency hedging and investment decisions.

The direction of the U.S. 10-year Treasury yield, which has crossed the critical 5% line, is another core risk to the Korean economy.

Asked what level of the U.S. 10-year Treasury yield could offset U.S. growth, respondents clustered in the 5% to 5.5% range. Six experts pointed to 5.0% to 5.2%, and seven cited 5.25% to 5.5%. Jung said, "Even 5% is already a risky level for the U.S. economy," adding that "if rates rise further, the burden on consumption and investment could grow." The analysis suggests that from around 5.5%, the shock to the economy and public finances could intensify.

Rising U.S. Treasury yields raise funding costs for households, companies and governments, and can also constrain investment in industries requiring large upfront outlays, such as artificial intelligence and data centers. The 30-year fixed mortgage rate in the United States recently rose to 6.76%, its highest level in more than a year. If global funds shift to the United States on more attractive yields, outflow pressure on emerging market assets could grow and their currencies could weaken. If that leads to a weaker won in South Korea as well, the burden of import prices could increase again, weakening the price-stabilizing effect of a stronger won.

The Bank of Korea, in the minutes of its August Monetary Policy Board meeting, also assessed that if rising U.S. Treasury yields push up funding costs for hyperscalers, AI investment could contract and weigh on domestic semiconductor exports.

Some point out, however, that the shock to the economy cannot be judged by the absolute level of U.S. Treasury yields alone. The impact on the real economy can differ depending on whether the rise reflects higher real rates driven by economic recovery or a wider term premium stemming from fiscal concerns. Kang Hyun-joo, a senior research fellow at the Korea Capital Market Institute, said, "What determines the impact on the real economy is not the number 5% or 5.25% itself, but whether the rate increase stems from an improvement in real rates or from a widening term premium due to fiscal concerns."