South Korea trade talks with U.S. deadlocked over forex, Seoul says

By Yena Park and Jihoon Lee

SEOUL, Sept 9 (Reuters) - South Korea's negotiations to finalise a U.S. trade deal are being held up due to foreign exchange issues and Seoul has asked Washington to help find a way to cap any market impact from a $350 billion investment package, a senior presidential official said on Tuesday.

The delay in striking a final deal comes after U.S. President Donald Trump last week signed an executive order to implement Japan's trade deal, which includes a $550 billion investment package.

South Korea is yet to reach a written agreement on its deal, which was struck in July and includes a $350 billion package to be invested in the United States.

Presidential Policy Secretary Kim Yong-beom said that Japan and South Korea were in a different situation, echoing earlier comments by the industry minister and the foreign minister on Monday that Seoul could not agree to similar terms outlined in Japan's agreement on the investment package.

"While there is not much difference in trade surpluses, the size of the economy, more importantly foreign exchange market conditions are very different," Kim told a live discussion forum.

Kim said the most important matter that needed to be addressed in order for South Korea to sign any agreement on the investment package was the impact it would have on the domestic dollar-won exchange market.

South Korea was in a different position to Japan because the yen is an international currency, while Japan also has a currency swap programme and foreign exchange reserves that are three times larger than South Korea's that would help cap the impact of its $550 billion investment in the U.S., he said.

Since the deal was announced in late July, there have been growing expectations among market participants that the $350 billion investment will add to downward pressure on the won in the long term.

The $350 billion compares with the maximum amount of $20-30 billion state-run policy banks can procure in a year, Kim said.

It also compares with the national pension fund's overseas investments of $2-3 billion a month – a factor already cited by market participants as a big force weighing on the won.

The won KRW=, which is currently trading at around 1,390 per dollar, has strengthened 6% so far this year, after weakening for four consecutive years to hit 15-year lows in 2024 below the psychological threshold of 1,400 mark.

South Korea agreed with the U.S. at their opening round of trade talks in late April to put currency policy on the agenda and has since been in working-level consultations.

The matter will be included when the two countries announce a final agreement after trade negotiations conclude, Finance Minister Koo Yun-cheol said on Monday.