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Summary
Bank of Korea says NPS has activated strategic FX hedging
The move aims to manage FX risk and curb won volatility
Hedging could generate dollar selling and support the won
Authorities frame it as risk management, not intervention
Signals lower tolerance for prolonged currency weakness
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South Korea’s central bank, the Bank of Korea, said the country’s National Pension Service (NPS) has activated a new framework for strategic foreign-exchange hedging, marking an important shift in how authorities are seeking to stabilise the won amid persistent currency volatility.
The NPS, one of the world’s largest pension funds with extensive overseas investments, has traditionally run a relatively low level of currency hedging, allowing foreign-exchange moves to flow through to returns. Under the new approach, the fund can activate FX hedging in a more systematic and strategic manner, particularly during periods of heightened market stress or excessive exchange-rate swings.
The move comes as the won has faced sustained depreciation pressure, driven by a strong U.S. dollar, global risk aversion and concerns over capital outflows. A weaker currency raises imported inflation risks and complicates monetary policy, increasing the sensitivity of authorities to sharp or disorderly FX moves. By activating strategic hedging, the NPS effectively becomes a source of dollar selling and won demand, helping to counter downward pressure on the currency.
Crucially, the mechanism is designed to operate as a risk-management tool rather than a form of direct FX intervention. Hedging decisions are intended to be rules-based and aligned with portfolio management objectives, rather than day-to-day market targeting. Even so, given the sheer scale of the NPS’s overseas assets, its hedging activity has the potential to influence FX market dynamics in a meaningful way.
The Bank of Korea has framed the initiative as part of a broader effort to strengthen financial stability without relying solely on interest-rate policy or overt market intervention. It also allows authorities to lean on domestic institutional flows to smooth volatility, while preserving foreign-exchange reserves and avoiding the political sensitivities associated with direct intervention.
For markets, the activation of strategic hedging adds an important new layer to the won’s policy backdrop. While it does not imply a specific exchange-rate target, it signals a lower tolerance for persistent weakness and outsized volatility. It may also act as a deterrent to speculative positioning against the won, particularly during periods of global stress.
Overall, the move underscores South Korea’s increasingly pragmatic approach to FX management, blending monetary policy, institutional balance-sheet tools and communication to contain volatility while maintaining policy flexibility.
In other moves, South Korea unveiled a set of tax measures aimed at encouraging capital to flow back onshore and reducing currency-related risks for households.
Authorities said retail investors will be exempt from capital gains taxes when selling overseas stocks if the proceeds are reinvested domestically. The government will also increase tax incentives for companies that repatriate earnings from abroad, while offering new tax benefits for retail investors who hedge foreign-exchange exposure. Together, the measures are designed to support domestic investment, ease pressure on the won by dampening outbound capital flows, and improve resilience to FX volatility without resorting to more direct market intervention.
This article was written by Eamonn Sheridan at investinglive.com.
The People’s Bank of China (PBOC), China’s central bank, is responsible for setting the daily midpoint of the yuan (also known as renminbi or RMB). The PBOC follows a managed floating exchange rate system that allows the value of the yuan to fluctuate within a certain range, called a “band,” around a central reference rate, or “midpoint.” It’s currently at +/- 2%.
The Bank injected CNY 26bn via 7-day reverse repos at an unchanged rate of 1.4%.
Earlier:
The daily fixing of this mid-rate is often interpreted as a policy signal rather than just a technical reference point. A higher-than-expected USD/CNY midpoint is typically read as a sign the PBOC is leaning against CNY appreciation pressure, like today.
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In trading yesterday the offshore yuan (CNH) strengthened past 7.02 per dollar, to its strongest level since October 2024.
As Wednesday’s USD/CNY trade opened the pair moved to the lowest since September 30 of 2024.
In other FX news:
Yen is also pushing stronger following the data and BoJ earlier:
Yen is having a good week. As I posted earleir:
Remarks from Atsushi Mimura warning about excessive and one-sided currency moves prompted a reassessment of short-yen positions, reinforcing the sense that authorities are increasingly sensitive to renewed volatility. This message was later echoed by Finance Minister Satsuki Katayama, adding further weight to the view that sharp or disorderly moves would not be ignored.
This article was written by Eamonn Sheridan at investinglive.com.
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