Bank of Korea: There is a gap between overseas investment income and foreign exchange inflow, providing weaker support for the Korean won than expected

Golden Ten Data reported on June 18 that a study by the South Korean central bank indicated that investment income derived from overseas assets may provide less support for the Korean won than previously expected. This is because a large portion of these funds are retained abroad and continually reinvested, rather than being remitted back to South Korea, resulting in a gap between the headline investment income surplus and actual foreign exchange inflows. As overseas investment continues to grow rapidly, this issue is becoming increasingly prominent. The research suggests that this phenomenon helps to explain why, despite strong South Korean semiconductor exports and the current account surplus approaching historical highs recently, the won remains relatively weak. Since the start of this year, the won has depreciated by more than 5%, making it one of the worst-performing Asian currencies. Therefore, policymakers not only need to focus on the scale of investment income, but also on the proportion that is repatriated. The report estimates that if the scale of overseas investment rises by about 3% relative to the average level, this would push the USD/KRW exchange rate up by approximately 0.7 percentage points, reflecting increased demand for foreign currency; conversely, if investment income rises around 8% above the average, the exchange rate could decline by about 0.4 percentage points.