The Forces Driving Asia's Two Worst-Performing Currencies in 2026

The crisis has also exposed the limits of Bank Indonesia's intervention capacity. Between December 2025 and April 2026, the central bank's foreign exchange reserves plummeted by $10.27 billion, reaching $146.20 billion, as policymakers burned through dollars to slow the currency's decline . By the first quarter of 2026, reserves were at their lowest point since July 2024 .

Faced with a historic rout, Bank Indonesia has abandoned gradualism. The central bank delivered a 50-basis-point rate hike at its regular May policy meeting and then shocked markets with an additional off-schedule 25-basis-point increase, lifting the benchmark rate to 5.5% to attract capital and defend the currency . Simultaneously, authorities have tightened foreign-exchange regulations for the third time in two months in a bid to curb speculative dollar demand . The old emerging-market stabilization playbook is being deployed aggressively, but the sheer scale of external pressure means the rupiah continues to plumb new depths .

The Won's Structural Flight: A Generation of Investors Heading Abroad

The South Korean won is under a different but equally relentless form of pressure. In March 2026, it nosedived to its weakest level in 17 years near 1,516 per dollar, before settling around 1,514 in May . Unlike the rupiah, the won is not collapsing because of a trade deficit. South Korea runs a substantial trade surplus. The breakdown is happening on the capital account.

The most visible driver is the emergence of the so-called "seohak ants"—a legion of Korean retail investors who have poured massive amounts of capital into overseas equities, particularly in the United States . This structural outflow of capital creates a persistent, unyielding demand for dollars, weakening the won regardless of the trade balance. The Bank of Korea and the Korea Capital Market Institute have identified this shift as a core structural factor, driven in part by an aging population seeking higher returns abroad amid slowing domestic growth prospects .

This retail exodus has been supercharged by a record exodus of foreign portfolio investors. Between March 3 and late March 2026, foreign investors sold a net 30.3 trillion won ($20.06 billion) of shares on the benchmark Kospi market, a sell-off that is cited as the primary accelerant for the currency's plunge . The rout reflects a broader risk-off mindset linked to the Middle East war and a shift away from Korean large-cap semiconductor names .

Adding to the currency's vulnerability is the rapid expansion of domestic money supply, which has grown at its fastest pace in years. Some analysts argue that expansionary fiscal policy has created a liquidity overhang, with much of that liquidity converted into dollars and reinvested in the United States rather than in Korea's domestic economy . The Bank of Korea finds itself in a bind where raising rates to defend the currency could further suffocate an economy growing at an IMF-estimated 0.9% in 2025 .

Seoul's response has so far relied heavily on rhetoric rather than drastic rate action. Governor Rhee Chang-yong has repeatedly called the won "misaligned" with Korea's strong economic fundamentals, signaling determination to support FX stability and warning the central bank would block US-bound investments that threaten stability . The U.S. Treasury Department even weighed in to state that the won's additional weakening in the second half of 2025 was "inconsistent with South Korea’s strong economic fundamentals" .

In late December 2025, authorities deployed aggressive verbal intervention to engineer a temporary rebound . The government has also announced tax incentives designed to lure capital back home, offering breaks on capital gains from foreign stock sales—provided the proceeds are reinvested in domestic equities for at least one year . So far, these measures have provided only fleeting relief against the structural tide of outflows.