Currencies January 15, 2026 05:02 AM

Bank of America Projects Strengthening of Korean Won in 2026 Amid Government Measures

Currency expected to rebound against the U.S. dollar as policy interventions seek to curb capital outflows

By Derek Hwang

Bank of America anticipates an appreciation of the Korean won against the U.S. dollar by the end of 2026, forecasting a USD/KRW exchange rate of 1,395. Despite current depreciation pressures driven largely by significant retail investor outflows, recent government policy adjustments, including a capital gains tax reduction on foreign equity sales, are seen as initial steps toward stabilizing the currency. Further fiscal incentives could improve the supply-demand dynamics in Korea's foreign exchange market, particularly considering Korean investors' significant exposure to U.S. technology stocks, which could influence repatriation flows.

Bank of America Projects Strengthening of Korean Won in 2026 Amid Government Measures

Key Points

  • Bank of America forecasts Korean won to strengthen against USD in 2026, aiming for USD/KRW 1,395 by year-end.
  • Government's capital gains tax cut on foreign equity sales implemented in December 2025 to curb retail investor outflows.
  • Korean investor concentration in U.S. tech stocks could drive future capital repatriation and won appreciation.

Bank of America (BofA) forecasts a strengthening of the Korean won versus the U.S. dollar by the conclusion of 2026, setting a target exchange rate of 1,395 USD/KRW. This projection comes despite ongoing downward pressure on the currency brought about by recent market dynamics.

The bank’s analysis highlights that current government efforts have yet to effectively halt the won's depreciation, even amid public remarks from the U.S. Treasury drawing attention to the won’s weakness. Political forces are expected to increasingly push for strategies to stabilize the currency as pressure mounts.

According to BofA, substantial portfolio outflows among retail investors remain a principal factor contributing to the won's vulnerability. In response, the Korean government implemented a capital gains tax reduction on foreign equity sales effective December 23, 2025. This measure is viewed by the bank as an initial attempt to address these outflows.

BofA suggests that additional tax-related incentives might be necessary to rebalance supply-demand conditions within Korea's foreign exchange framework. Korean investors notably concentrate their foreign equity portfolios in U.S. technology companies, signifying a potential catalyst for won appreciation.

The bank’s analysis further indicates that any significant valuation corrections within the U.S. technology sector could lead to repatriation of capital to Korea. Such movements could materially strengthen the won.

Risks

  • Current government interventions have not fully reversed won's depreciation, indicating potential for continued currency weakness.
  • Political pressure to stabilize the won may increase but effectiveness of future measures remains uncertain.
  • A major downturn in U.S. technology stocks could unpredictably affect repatriation flows and won strength.

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