The government is mounting an all-around response to put the brakes on the soaring won·dollar exchange rate, moving from verbal intervention and the first joint foreign-exchange examination in 14 years to even convening a meeting with exporters. However, as the Middle East geopolitical crisis intensifies and net selling of domestic stocks by foreign investors continues, the rate is barely retreating.

At a meeting with major exporting companies held at Government Complex Seoul on the 11th, Heo Jang, Second Vice Minister of Finance and Economy, and Moon Shinhak, Vice Minister of Trade, Industry and Energy, called for joint public-private efforts to ease foreign-exchange volatility.

Heo said, “Although the real economy is solid, if the high exchange rate persists it can increase the burden on companies and households and slow the recovery of livelihoods,” and requested, “Please convert export proceeds immediately and work to bring overseas retained funds back into the country.” Moon also emphasized, “It is important for companies to play an active role so that the negative impact of the high exchange rate on exports and the economy can be minimized.”

As institutional measures by the foreign-exchange authorities alone have not tamed the rate, the government appears intent on breaking high-rate sentiment by enlisting large exporting companies, a core pillar of dollar supply and demand. Representatives from Samsung Electronics, SK hynix, Hyundai Motor·Kia, HD Korea Shipbuilding & Offshore Engineering, Samsung Heavy Industries, and Hanwha Ocean attended the meeting.

Government market intervention has become more assertive in recent days. When the won·dollar rate jumped intraday to the 1560-won range in after-hours trading on the 5th, the government held an emergency market check meeting on Sunday the 7th chaired by Deputy Prime Minister and Finance and Economy Minister Koo Yoon-cheol. The next day, the Ministry of Finance and Economy and the Bank of Korea engaged in verbal intervention, saying, “We will never tolerate excessive volatility and one-way herd behavior.” The National Pension Service also sold a large volume of FX forwards, resuming currency hedging that had been halted at the start of the year.

The level of pressure is also expanding into on-site inspections. Starting on the 10th, the Bank of Korea and the Financial Supervisory Service launched a joint foreign-exchange examination of major foreign-exchange banks, the first since 2012. On the same day, the pan-government ‘Illegal FX Transaction Response Team’ announced that it had uncovered illegal foreign-exchange transactions worth about 415.4 billion won and signaled tougher crackdowns.

Although the amplitude of fluctuations has narrowed somewhat thanks to across-the-board government intervention, the rate has remained in the 1500-won range since the 15th of last month. With net selling of domestic stocks by foreign investors still continuing and Middle East geopolitical risk reemerging, on the 11th the rate closed at 1528.9 won, up 4.7 won from the previous session weekly closing level.

A major factor behind the rate not falling is net selling by foreign investors of domestic stocks. According to analysis by Hyundai Motor Securities, among recent won·dollar exchange-rate fluctuations, the contribution of net stock selling by foreign investors is about 50%, far exceeding other factors such as rising oil prices (20.0%) and a stronger dollar (18.7%).

In fact, foreign investors have been net sellers of domestic stocks for 20 consecutive trading days since the 7th of last month. Their net selling as a share of average daily turnover is 5.6%, roughly four times the 1.5% recorded last year. The foreign-exchange authorities expect the selling to gradually enter a calming phase, but it is still hard to say the downtrend in selling has clearly reversed. In addition, the stalling of ceasefire negotiations is also acting to push the rate higher.

Experts expect exchange-rate volatility to continue for the time being. An investment-industry official said, “Although the recent spate of interventions by the foreign-exchange authorities has slowed the uptrend in the exchange rate, net selling of domestic stocks by foreign investors driven by asset-allocation adjustments is likely to continue through the third quarter.” The official added, “Even if the war ends, oil prices are likely to stay around 80~90 dollars per barrel, so the high-exchange-rate regime is likely to persist for the time being.”