MUFG says AI-driven demand and strong semiconductor exports are cushioning parts of Asia from spillovers linked to the Strait of Hormuz, with South Korea benefiting most and Taiwan also supported; Singapore and Malaysia are described as seeing a smaller offset. The note also points to policy messaging from the Bank of Korea, which is framed as leaning hawkish, against a backdrop of robust trade performance and firmer price pressures.
The bank cites inflation at 3% year on year, while May exports on a working-day-adjusted basis rose 60% year on year, and it argues these conditions keep South Korean rates sticky. MUFG’s 12‑month view has USD/KRW moving towards 1400, alongside references to valuations, the current account surplus and earnings expectations as factors in the currency outlook.
AI Demand and Export Boom Drive Won Strength
We see the South Korean Won strengthening in the coming weeks, despite ongoing geopolitical risks from the Strait of Hormuz. The powerful tailwind from AI-related demand is boosting semiconductor exports and fundamentally changing the economic picture. This tech-driven strength is creating a compelling case for a stronger currency.
The latest data supports this optimistic view, as South Korean semiconductor exports for May 2026 surged by 22.5% year-on-year. This export boom, combined with a persistent inflation rate of 3.0%, is giving the Bank of Korea a clear mandate to maintain its hawkish stance. The central bank’s policy rate has held firm at 3.50% for over a year, signaling a continued focus on stability and inflation control.
Positioning for KRW Gains Amid Policy and Geopolitical Volatility
For derivative traders, this outlook suggests positioning for KRW appreciation against the US dollar. We believe buying KRW call options with expirations in late July or August could be an effective strategy to capitalize on this trend. Selling USD/KRW futures contracts is another direct way to position for a lower exchange rate.
The recent comments from the Bank of Korea’s governor are a key catalyst, strongly hinting at a potential interest rate hike in July. Traders should look to establish positions before this meeting, as a rate increase would likely provide a significant boost to the Won. The current environment presents an opportunity to act ahead of a widely anticipated policy move.
While tensions in the Middle East create volatility, we view any resulting weakness in the Won as a buying opportunity. Historically, the KRW has shown resilience, and its short-term dips during geopolitical scares have often been followed by recoveries driven by strong economic fundamentals. The powerful export cycle should override these external risks over the medium term.
