MUFG’s Senior Currency Analyst Michael Wan highlights a bullish outlook for the South Korean won (KRW), citing two major factors: the ongoing strength in the AI and technology cycle and a significant shift in the National Pension Service (NPS) FX hedging policy [1]. According to Wan, while KRW remains vulnerable to risks such as prolonged conflict and elevated oil prices, the bank’s base case forecasts suggest KRW could outperform in a de-escalation scenario, largely due to expectations that the robust tech cycle will persist despite energy-related risks [1].
A pivotal development is the NPS’s decision to scrap its longstanding 15% cap on forex hedging. This cap will now serve as a baseline ratio, with FX hedging becoming a core policy in overseas investment rather than being used only in exceptional circumstances. MUFG views this structural change as having important implications for KRW, not only in the near term but also potentially over the medium term [1].
The combination of continued tech sector strength and increased flexibility in NPS’s FX hedging strategy is expected to provide support for KRW, especially during periods of market volatility. MUFG’s analysis suggests that these factors could help KRW outperform relative to other currencies if geopolitical tensions ease [1].
CONCLUSION
MUFG anticipates that South Korea's KRW will benefit from both a strong technology cycle and a major shift in NPS FX hedging policy. These developments are seen as structurally positive for KRW, with potential for outperformance in a de-escalation scenario. The market takeaway is cautiously optimistic, with medium-term implications for KRW strength.