Foreign exchange crisis: Trade surplus of $90 billion, pension fund repatriation of $100 billion, $350 billion added to US investment
The Lee Jae-myung administration appears to have exposed the chronic deficit structure, with pension funds investing $100 billion overseas, to an annual trade surplus of $90 billion. The Lee Jae-myung administration added $350 billion to its US investment. Reuters analyzed the foreign exchange crisis that led to South Korea suspending tariff negotiations with the United States and reported on the 15th that “
Prime Minister Kim Min-seok stated during a National Assembly interpellation session on the 16th regarding South Korea's investment negotiations with the United States, "The National Assembly's consent may be required when the final negotiations are underway and concluded."
The Constitution stipulates, "Article 58 states that the government must obtain prior approval from the National Assembly before issuing national bonds or entering into contracts that will impose a national burden outside of the budget." Prime Minister Kim and President Lee Jae-myung violated this constitution by agreeing to a $350 billion investment with the White House.
Citi, the largest investment bank, predicted that South Korea’s pension fund’s overseas investment package will generate overseas dollar demand of about $100 billion annually from 2026 to 2028 (with an annual outflow of up to $117 billion).”
They added that “South Korea’s economy is much smaller than Japan’s, with a current account surplus of $99 billion last year, less than half of Japan’s annual $200 billion. In addition, the Bank of Korea’s foreign exchange reserves in August were $416 billion, one-third of Japan’s $1.3 trillion, following the Japanese tariff negotiation model.”
Japan's current account surplus in 2024 was projected to reach 29.3 trillion yen ($192.67 billion), the largest since relevant data began being released in 1985. This represents a 29.5% increase year-on-year. Based on the trend of expanding overseas investment in a dollar-rich environment, Japan played the $550 billion US investment card in tariff negotiations with Trump.
Reuters reported on February 10th, "The 2024 current account surplus of 29.3 trillion yen (approximately $200 billion) is a record high, driven by higher returns on foreign investment, which helped comfortably offset the trade deficit. Primary imports of securities and foreign direct investment remained the largest drivers, posting a surplus of 40.2 trillion yen, as Japanese companies pursue growth overseas, including through acquisitions of foreign companies."
South Korea's average daily global trade volume in Korean Won is $142 billion, only 1/9th that of the Japanese Yen at $1.25 trillion. Japan initially proposed and agreed to a $550 billion investment. South Korea, however, has thoroughly followed Japan's lead with a total investment of $600 billion (350 billion investment + $100 billion LNG purchase + $150 billion US investment by large corporations), implementing the strategy of "Korea overtaking Japan in the US manufacturing renaissance."
The Bank for International Settlements (BIS)'s April 2022 report, published every three years, stated that the Korean Won held 2% of the global market share, while the Japanese Yen held 17%. The 2025 report has not yet been released. Japan agreed to transfer funds within 45 days of selecting a project in the negotiations with the United States, signing a document. Any surplus cash flow from the investment would be distributed evenly until the allocated amount was reached, with 90% going to the United States.
US Commerce Secretary Howard Rutnick stated on the 11th, "There will be no flexibility for Korea," adding, "The Japanese have signed the contract. Korea must either accept it or pay the tariffs. Pay the tariffs or accept the deal."
The Korean won hit a 15-year low of around 1,476 per dollar late last year. Under the Lee Jae-myung administration, the won has been steadily increasing its issuance of government bonds and has announced a series of measures to "expand investment," including the creation of a 100 trillion won sovereign wealth fund, and to "expand supply" through consumption stimulation, attracting foreign investment. It is currently trading at around 1,390 won.
Reuters reported on the "FX swap line with the US" proposed by Policy Director Kim Yong-beom, stating, "The US Federal Reserve maintains swap line agreements with the central banks of Canada, the UK, Japan, the European Union, and Switzerland."
They added, "During the COVID-19 pandemic, temporary swap lines worth $60 billion each were established with the Bank of Korea and eight other central banks in March 2020. After the swap lines expired in December 2021, the Fed provided the Bank of Korea with a $60 billion safety net through repurchase agreements, allowing it to borrow dollars using its holdings of US Treasury securities as collateral."
The swap line, initially intended to maintain the status quo at around $60 billion, became impossible to exchange due to the $350 billion in US investments required. South Korea, in an effort to mitigate the impact, proposed a proposal by Director Kim and Deputy Prime Minister Koo Yoon-chul.
Reuters reported, "The idea of seeking a foreign exchange swap line with the United States was publicly raised last week by Kim Young-beom, the chief of staff to the president. He stated that the yen's status as a major international currency and the unlimited swap line between Japan and the United States placed Japan in a stronger position."
Reuters continued, "Finance Minister Koo said last week that an announcement on foreign exchange would be made after tariff negotiations conclude." He also told Reuters on the 15th that he believed the United States would "consider" a currency swap line, after local media outlets reported that the government had forwarded the request to the United States.
Maeil Business Newspaper reported on the 14th, "According to the presidential office and the government, the South Korean government recently raised the need for an unlimited Korea-U.S. currency swap during tariff negotiations with the United States." A key government official explained the request as a "common-sense response to secure foreign exchange market safeguards," revealing signs of a foreign exchange crisis. Maeil Business Newspaper continued on the 14th, stating, "There are concerns in the market that if the US procures dollars without a currency swap as requested, the exchange rate could jump from a few hundred won to as much as 1,000 won."
On the night of the 15th, the one-month won-dollar non-deliverable forward (NDF) contract in New York closed at 1,390.7 won. Considering the recent one-month swap point (-2.20 won), the exchange rate on that day was expected to open 4.7 won higher than the previous day's closing price (1,388.2 won, as of 3:30 p.m.).
On the 15th, Deputy Prime Minister Koo Yoon-chul urgently announced, "We will maintain the stock transfer tax for major shareholders at 5 billion won," and took steps to prevent foreign capital outflows from the domestic stock market and defuse the foreign exchange crisis.
At a briefing on the 15th, Spokesperson Kang Yoo-jung responded to a report that "the US is known to have a negative stance on a Korea-US currency swap," saying, "We cannot help but consider the impact on the foreign exchange market, so we are fully considering this during negotiations." This indirectly confirmed the US rejection of the Lee Jae-myung administration's request for an unlimited swap.
Returning to Korea early on the 14th, Minister of Trade, Industry and Energy Kim Jeong-gwan responded to reporters' inquiries at Incheon International Airport about the progress of negotiations by stating only, "Bilateral consultations are ongoing," and avoided further questions, including the outcome of the swap request. This indirectly confirmed the US rejection.
The Bank of Korea stated in its report, "Dollar Hegemony and the Global Spillover of the US Shock," on the 15th, "We must also prepare for the potential global spread of dollar stablecoins and the resulting impact on the domestic economy of the dollar's international status."
The report stated, "If dollar stablecoins are widely used for export and import settlements based on their convenience, the impact of dollar value fluctuations on global trade could expand through GVC (Global Value Chain) working capital channels and trade settlement channels."
Japan's economic structure has begun to shift from its largest trade surplus last year.
Reuters reported, "Japan is now offsetting its trade deficit with a strong primary income surplus, including interest payments and dividends from past overseas investments. Most of the income earned overseas is reinvested overseas rather than converted into yen and repatriated, which analysts say may be keeping the Japanese currency weak." The Bank of Korea announced the shift to an "overseas investment expansion system" on February 10th.
"There's no reason to repatriate overseas investments because they yield higher returns than domestic investments," Takeshi Minami, chief economist at the Norinchukin Research Institute, told Reuters.
Facing pressure from the United States, Japan's largest exporter, to eliminate its $68.5 billion annual trade surplus under the Trump administration, Japan used its $550 billion investment in the US in tariff negotiations to secure political self-determination, including the right to restrict agricultural market opening and the right to "self-determine the increase in defense personnel."
The Lee Jae-myung administration's request for an unlimited currency swap with the US during tariff negotiations was exposed, but was rejected. This suggests that the hedge fund offensive, exploiting the foreign exchange market crisis, is expected to expand to the stock market, government bonds, and foreign exchange markets.
At the White House summit, President Lee, who had already depleted $410 billion in foreign exchange reserves through a $350 billion investment and $100 billion LNG purchase agreement, praised Trump's "MAGA-style renaissance of American manufacturing," adding a $150 billion investment agreement from the heads of South Korean conglomerates. The Korean media and government largely praised this as a "South Korean-American manufacturing renaissance."
On the 16th, Trade Minister Kim Jeong-gwan denied reports that he had visited the US Secretary of Commerce in New York and proposed a US$350 billion investment proposal, including a US$150 billion MASGA, and changed the description of the US$350 billion proposal to “the US made the proposal first, which made me seethe,” and prioritized finding out the truth.
See <Lee Jae-myung's Tariff Negotiations: Abandonment of 'Mutual Benefits' and a Sharp Shift to 'National Interests,' Exposed to the Foreign Exchange Crisis, September 14, 2025>
<Trump 'Adds 350 Billion US-Owned Fund at Summit', Lee Jae-myung's 'North Korea-Only Fund' Clashes Over Agricultural Products, July 31, 2025>
<Ku Yoon-chul Supports Trump Regime for 'Mutual Benefit Goals', Lee Jae-myung Manipulates Media, 'Guarantees Mutual Benefit System', July 29, 2025>
<Lee Jae-myung Regime Subordinates Trump Executive Order, Abandons MASGA Recovery of Maritime Hegemony Funds, 'Tribute Diplomacy', August 1, 2025>
<Lee Jae-myung MASGA 'US Maritime Dominance' Executive Order, 'Enemy' 'China' Gives Hundreds of Billions of Dollars to the US, July 28, 2025>