Korea’s won has fallen 12.6% against the dollar over 12 months and local government bonds have lost 10% since end-June 2025, even as the economy posts record external surpluses and stronger growth.
About $100 billion flowed out of Korean equities over the past year, while exporters converted relatively little dollar income into won, offsetting support from a $123 billion 2025 current-account surplus and continued foreign demand for government bonds.
KTBs were also hit as investors priced out policy easing and then added more tightening bets after the US-Iran conflict, household debt growth and firmer domestic activity lifted inflation concerns.
Policy support is starting to build: exporter dollar sales rose to 18.6% in March, January-April 2026 current-account surplus reached about $102.7 billion, and FTSE bond-index inclusion is expected to bring roughly $52 billion of passive inflows.
The broader view is that markets are pricing Korea more like a stress case than an AI-boom beneficiary, despite a 262% KOSPI surge and no sign of a foreign-currency funding crisis.
As Korea’s AI-powered economy soars, why are its currency and bonds in a freefall?
With investors fleeing, can Korea’s massive tech profits actually save its own struggling currency?
Is the global AI boom dangerously dependent on South Korea's volatile financial markets?
South Korea’s Currency and Bond Market Turmoil in 2026: Why a Strong Economy Isn’t Lifting the Won or Yields
Overview
South Korea’s economy in July 2026 is marked by a striking paradox: while the Korean won remains volatile and government bond yields stay high, other economic indicators show notable strength. This complex situation is shaped by major capital market events, such as SK Hynix’s massive ADR issuance in the U.S., which attracted strong investor demand and is expected to bring significant foreign capital back into Korea. At the same time, robust export performance adds to the positive backdrop, but the interplay of these factors creates both opportunities and challenges for financial markets and policymakers.