NPS Faces Strategic Shift as South Korea Wrestles with Currency Volatility

South Korea’s National Pension Service (NPS) is moving forward with plans to issue foreign currency-denominated bonds as the nation grapples with a weakening won. First Vice Minister Seuran Lee of the Ministry of Health and Welfare disclosed the initiative recently, marking an official acknowledgment of the fund’s evolving approach to portfolio management amid persistent exchange rate pressures. The announcement represents the first time a government official has publicly discussed this strategic pivot by Asia’s third-largest pension fund.

Currency Pressures Force NPS to Rethink Its Investment Approach

The won’s depreciation has created mounting challenges for NPS operations. Since mid-2025, the South Korean currency has lost approximately 7% against the dollar, straining the pension fund’s ability to maintain its foreign exchange equilibrium. To counter this deterioration, NPS has increasingly engaged in dollar sales through the foreign exchange forward market, attempting to stabilize the local currency while managing portfolio volatility.

These currency headwinds have compounded difficulties for Seoul’s broader economic objectives. The government’s ambitious $350 billion investment initiative in U.S. industries—negotiated under a bilateral trade agreement—faces heightened complexity as capital outflows intensify currency depreciation pressures. The NPS, managing one of the world’s largest pension portfolios, has become central to Seoul’s currency defense strategy.

Seoul’s Coordinated Response to Market Instability

Recognizing the interconnected nature of financial market challenges, South Korea’s policymakers are establishing a formal coordination framework. The Ministry of Health and Welfare, NPS, the Ministry of Finance, and the central bank have scheduled their first official meeting as a quadrilateral consultation body to tackle financial market stability holistically. This multi-agency approach signals the government’s acknowledgment that pension fund operations, currency management, and broader fiscal policy require integrated strategies.

The foreign currency bond issuance by NPS—if implemented as planned in the coming months—would mark a departure from conventional funding practices and reflect the fund’s need for enhanced financing flexibility. By diversifying its debt instruments into foreign currency markets, NPS aims to strengthen its capacity to weather exchange rate volatility while maintaining stable returns for South Korean retirees.