KRW up: South Korea NPS activates strategic FX hedging to curb won weakness and volatility

The Bank of Korea announced that the National Pension Service (NPS) has activated strategic foreign exchange hedging to manage currency volatility. This initiative aims to curb the weakening of the won, particularly during periods of heightened market stress. The NPS will employ a more systematic approach to currency hedging, allowing it to function as a source of dollar selling and support for the won, countering downward pressure. The mechanism is framed as a risk management tool rather than direct FX intervention, aligning with broader financial stability efforts. This indicates a reduced tolerance for persistent currency weakness, suggesting potential impacts on market dynamics. Additionally, South Korea introduced tax incentives to encourage capital repatriation and reduce risks associated with the currency, underlining a move towards a pragmatic approach in FX management.