Japan and Taiwan Hold Steady, but "Why Only Us?" What Made the Won Break Past 1,500?

Exchange Rate Up 3.41% Compared to Pre-War... Highest Among Major Economies

High Share of Middle Eastern Oil and Export-Oriented Economy as Key Factors

Stabilization Expected from Three Exchange Rate Bills... Some Say "A Rifle Beside a Morta

As geopolitical risks stemming from the Middle East reach their peak, the won-to-dollar exchange rate has once again surpassed the psychological threshold of 1,500 won. On the 19th, for the first time in 17 years since the global financial crisis, the weekly trading session closed above 1,500 won per US dollar, and this trend continued on the 20th. While the market is increasingly concerned about a “new normal” of a strong dollar, experts agree that the real danger lies not in the absolute exchange rate itself but in the uncontrollable volatility.

Largest Decline Among Major Currencies... Surpasses Dollar Index Increase Rate

According to Investing.com on March 21, from February 27 to March 17, when the Middle East crisis intensified, the value of the Korean won fell by 3.41% against the US dollar. This was the steepest decline among the currencies of more than 10 major countries during the same period. The currencies that followed Korea in terms of depreciation were the Swedish krona (2.76%), the EU euro (2.37%), and the Swiss franc (2.07%). Next, the Japanese yen (1.89%) and the Taiwan dollar (1.51%) posted depreciation rates in the 1% range. The British pound, Chinese yuan, Canadian dollar, and Australian dollar all remained relatively stable, with declines limited to below 1%.

Notably, during this period, the US Dollar Index (DXY)—which measures the dollar's value against six major currencies—increased from 97.61 to 99.57, a gain of 2.01%. The larger decline of the won indicates that the Korean currency is especially sensitive to external shocks.

On the 19th, the exchange rate information for the Korean Won/US Dollar was displayed in the dealing room at the Seoul headquarters of Hana Bank. In the Seoul foreign exchange market that day, as of 9:03 a.m., the Korean Won exchange rate against the US Dollar rose by 18.2 Won compared to the previous day's weekly closing price (based on 3:30 p.m.), reaching 1,501.3 Won. This is the highest level since the financial crisis, specifically March 10, 2009 (1,561.0 Won), based on intraday weekly trading. Photo by Cho Yongjun, March 19, 2026

'Achilles' Heel' of Energy Security and Export-Driven Structure

Experts attribute the unusually high volatility of the won to several factors: excessive reliance on Middle Eastern oil, an export-oriented economic structure, and a highly open stock market. Seok Byounghun, professor of economics at Ewha Womans University, explained, "If the Middle East conflict pushes up oil prices, transportation costs also rise, eroding export competitiveness. If the domestic market were large, Korea could redirect goods there, but since it is not, the won depreciates more rapidly."

Japan, which is in a similar situation, also relies on Middle Eastern oil for over 90% of its imports. However, the yen is a reserve currency that tends to attract demand during crises, and Japan’s large domestic market can absorb external shocks. In Taiwan, where exports account for as much as 70% of GDP, the impact of exchange rate shocks is less severe thanks to a massive foreign exchange reserve of USD 605.4 billion.

There are also warnings from international organizations that the scale of Korea’s dollar-denominated assets exposed to foreign exchange risk is excessive compared to the size of the foreign exchange market. According to the International Monetary Fund’s “Global Financial Stability Report” published in October last year, Korea’s foreign-exposed dollar assets were found to be about 25 times the country’s monthly foreign exchange market trading volume. This implies that Korea could be especially vulnerable to exchange rate volatility amid global financial uncertainty.

An official from the Ministry of Economy and Finance stated, "Because Korea's capital market is still developing, it is more susceptible to turbulence, much like a small boat facing waves compared to a large aircraft carrier in advanced markets. Ultimately, as the market grows larger, its stability is expected to increase."

Experts believe that sharp volatility, rather than a simple upward trend in the exchange rate, poses a greater economic risk. Heo Junyoung, professor of economics at Sogang University, commented, "A higher exchange rate can be advantageous or disadvantageous for companies depending on their situation, but high volatility is a negative for all economic players. It complicates planning and creates significant additional costs due to exchange rate fluctuations."

Three Exchange Rate Stabilization Bills Nearing Passage ... “A Rifle Next to a Mortar” VS “Better Than Nothing”

In an effort to calm wild swings in the exchange rate, the government has proposed what are called the "three exchange rate stabilization bills," which are now close to being passed in the National Assembly. The centerpiece is a provision granting up to 100% capital gains tax deduction for investing in domestic stocks through a Returning Investment Account (RIA). The amendments also introduce new income tax deductions for investments in foreign exchange hedging products and raise the tax exemption rate on repatriated dividends from overseas subsidiaries to domestic companies from the current 95% to 100%. In essence, this temporarily exempts domestic corporations from taxation on dividends received from foreign subsidiaries.

However, there are concerns that, since the won's sharp volatility is rooted in Korea’s overall economic structure, the three exchange rate stabilization bills may have only a limited effect on market stability. Professor Heo pointed out, "Even before the Middle East conflict, the won-dollar rate was moving in one direction. The government has proposed various measures, but their effect will be like a rifle next to a mortar—they cannot be the main weapon." The Ministry of Economy and Finance official responded, "Even a rifle is better than nothing in mitigating exchange rate volatility. As the three exchange rate stabilization bills are implemented and the domestic stock and foreign exchange markets grow, volatility is expected to gradually subside."

This content was produced with the assistance of AI translation services.