The U.S. has raised tariffs on South Korean imports to 25%, impacting industries like cars and medicine. Initially, the Korean Won (KRW) fell in value. However, improved local sentiment, supportive policies, and increased foreign investments helped stabilize South Korean assets. Markets are showing resilience as they shift back to a ‘risk-on’ approach, boosting stock prices and carry trades in the foreign exchange market. Still, challenges remain from tariffs, fluctuating interest rates—especially in Japan—and ongoing geopolitical uncertainties.

Influence of Trade and Geopolitics

The U.S. tariff hike on South Korean goods, paired with U.S. security commitments to Ukraine and the India-EU trade agreement, highlights how trade and geopolitical factors affect asset performance and capital movement in the region. These factors continue to shape market trends and influence asset reactions in the overall economy. Late last year, as the U.S. increased tariffs on South Korean imports to 25%, the Korean Won initially weakened. Despite pressure on key sectors like automobiles, the market regained stability due to strong local confidence and policy support. The return of foreign investments into Korean stocks was crucial in this stabilization. Recent data confirms this resilience, showing that net foreign investments in the KOSPI index exceeded $12 billion in the last quarter of 2025. Consequently, implied volatility in USD/KRW options has significantly decreased, hitting a six-month low of 7.8% last week. This indicates that the market does not anticipate major shocks in the near future. For traders in derivatives, this period of low volatility makes options more affordable. We suggest that buying call options on the Won or puts on the USD/KRW may be an effective strategy over the coming weeks. This approach allows for potential profits from KRW strength while minimizing risks if trade tensions rise again.

Broader Market Environment

The overall market environment, which has encouraged risk-taking since 2025, also supports carry trades backed by the low-yielding Japanese Yen. Historically, sudden actions by the Bank of Japan can disrupt these trades, as seen briefly in 2024. Utilizing forward contracts or simple options can help manage currency risks arising from wider geopolitical and monetary policy uncertainties. Create your live VT Markets account and start trading now.

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