South Korea's Won Faces Pressure: NPS Launches Foreign Currency Bond Initiative

South Korea’s currency landscape has become increasingly challenging, with the Korean won experiencing significant depreciation pressures since mid-2025. This currency headwind has forced the National Pension Service (NPS), the world’s third-largest pension fund, to fundamentally rethink its asset management and financing strategies to protect fund value and support broader financial stability in Seoul.

The Currency Crisis Behind the Policy

The depreciation of Korea’s currency against the dollar has created mounting challenges for the NPS’s foreign exchange portfolio management. Since the middle of 2025, the won has weakened by approximately 7% relative to the dollar, pressuring the fund to actively intervene in currency markets. To stem further deterioration, the NPS has been forced to sell dollars through the foreign exchange forward market, a defensive maneuver aimed at stabilizing Korea’s currency.

Beyond immediate market pressures, the currency weakness threatens South Korea’s ambitious commitment to invest $350 billion in U.S. industries as part of a bilateral trade framework with Washington. Additional capital outflows could trigger a vicious cycle of further won depreciation, complicating the government’s economic objectives.

NPS Foreign Currency Bond Strategy

In response to these mounting pressures, South Korea’s Ministry of Health and Welfare First Vice Minister Seuran Lee announced that the National Pension Service plans to issue foreign currency bonds before year-end. This marks the first official confirmation of what represents a historic shift in the fund’s financing approach.

The foreign currency bond issuance strategy serves multiple objectives: diversifying the NPS’s capital sources, reducing reliance on traditional domestic funding, and creating a framework for more flexible foreign exchange management. By issuing debt in foreign currencies, the NPS can better align its liability structure with its international asset holdings, reducing currency mismatch risks.

Coordinated Government Response

The urgency of Korea’s currency situation has prompted unprecedented coordination among government agencies. Lee revealed that the Ministry of Health and Welfare, the National Pension Service, the Ministry of Finance, and South Korea’s central bank will convene for their first formal gathering as a quadrilateral consultation body. This coordination mechanism aims to address interconnected challenges threatening financial market stability.

The establishment of this four-agency task force underscores Seoul’s recognition that Korea’s currency challenges require integrated policy responses spanning pension fund management, fiscal policy, and monetary operations. By working in concert, these institutions can develop more comprehensive solutions to support both the won’s stability and the NPS’s long-term sustainability.