US keeps South Korea on currency watch list for 4th consecutive time, says weak won 'inconsistent with fundamentals'

The US Treasury Department has kept South Korea on its currency monitoring list for the fourth consecutive time since the second half of 2024, as the country continues to meet the thresholds for trade and current account surpluses with the United States.

The Treasury reaffirmed its earlier assessment that the recent weakness of the won is inconsistent with South Korea's strong economic fundamentals, noting that the currency has faced persistent depreciation pressure despite the country's large external surpluses. However, it gave a positive assessment of Seoul's efforts to reform its foreign exchange market structure by easing restrictions on foreign investor participation in the domestic forex market.

According to the Ministry of Economy and Finance, the US Treasury released its "Macroeconomic and Foreign Exchange Policies of Major Trading Partners" report on Thursday (local time), evaluating the macroeconomic and exchange rate policies of the top 20 trading partners last year.

No country was found to require an enhanced analysis for currency manipulation in this round. The list of currency monitoring countries remained unchanged from January at 10 nations, including South Korea, Japan, China, Germany and Singapore.

Under US criteria, a country qualifies for monitoring if it posts a goods and services trade surplus with the United States of more than $15 billion, a current account surplus exceeding 3 percent of GDP, or net foreign exchange purchases equivalent to more than 2 percent of GDP sustained for at least eight months.

South Korea's goods and services trade surplus with the US stood at $45 billion, exceeding the threshold, while its current account surplus reached 6.6 percent of GDP. Its foreign exchange market intervention, however, came in at negative 1.5 percent of GDP, meaning it did not meet the criterion for persistent, one-sided market intervention.

The Treasury said South Korea's current account surplus expanded sharply last year, driven by strong exports of semiconductors and technology products. It said the trade surplus with the US narrowed from the previous year due in part to a decline in automobile imports, but remains roughly double the level of a decade ago.

The Treasury noted that the won has faced persistent depreciation pressure despite the country's large external surpluses, reiterating its January assessment that "recent won depreciation pressure is inconsistent with South Korea's strong economic fundamentals." It identified the expansion of overseas equity investment by households and businesses as a factor that compounded the won's weakness late last year.

The Treasury gave a positive assessment of South Korea's steps to open its foreign exchange market, saying the country has made progress in easing restrictions on foreign investor participation in the domestic forex market. It said such measures are expected to improve liquidity and price discovery in the domestic forex market over the medium to long term.

The Treasury also expressed interest in the National Pension Service's dollar purchases for overseas investment, as well as its new foreign exchange management framework and currency hedging policy. The South Korean government said it will continue to communicate closely with the US Treasury to deepen mutual understanding and trust regarding the foreign exchange market and to maintain cooperation for market stability.