South Korea

Intelligence for Better Decision Making

Bank of Korea and Naver Launch Sovereign AI Platform for Secure Financial Analysis

Jan. 22, 2026 | Financial System

South Korea’s central bank and technology giant Naver have launched a sovereign AI platform tailored to finance and economics.

**The Bank of Korea partnered with Naver Corp to develop and deploy BOKI (Bank Of Korea Intelligence), a generative AI system specialized in financial and economic analysis.**
Unveiled at the January 2026 Bank of Korea–Naver Joint AX Conference, BOKI represents the world’s first sovereign AI platform operating within a central bank’s live working environment.

**Bank of Korea engineers built BOKI entirely within the institution’s internal network, isolating it on-premises to prevent data leakage and comply with strict national security guidelines.**
Naver Cloud contributed the cloud infrastructure, large language models and technical support, while the Bank’s personnel manage application development and day-to-day operations. All AI training and inference occur within this closed network to ensure data remains secure.

**BOKI offers five core functions that align with the Bank’s mission: document search and summarization, Q&A assistance, translation of official publications, economic issue analysis and data-driven decision-making.**
The platform also features law and regulation checks and an internal work chatbot designed to streamline workflows.

**After launching initial digital technology initiatives in 2020, the Bank commenced full-scale development of BOKI in 2024.**
Following rigorous internal testing and standardization, the Bank initiated BOKI’s first operational rollout in early 2026.

**Governor Lee Chang-yong emphasized the need for a sovereign AI system that understands Korea’s financial history, institutional frameworks and cultural context.**
He warned that current network separation policies—which forbid cloud-based internet access for critical institutions—hinder large-scale AI deployment and called for regulatory reforms to accommodate significant computing demands.

**Anticipating regulatory changes by March 2026, the Bank is reclassifying around 1.4 million internal documents into AI-readable formats, preparing a new national network security system and evaluating advanced security technologies.**
These steps will allow BOKI’s capabilities to expand once network separation rules are relaxed.

**Naver Cloud plans to apply lessons learned from BOKI to accelerate AI transformation across other high-security public and financial sectors.**
CEO Kim Yoo-won pointed to this project as a global example of deploying AI under stringent central bank security conditions and pledged continued support to strengthen AI infrastructure throughout South Korea’s industries.

Surging Semiconductor Demand Fuels Price Increases, Export Growth, and Production Expansion

Jan. 22, 2026 | Firms

Strong global demand for semiconductors is driving increases in prices, exports, and production capacities.

**Producer prices in South Korea rose 0.4 percent month-on-month in December 2025, marking the fourth consecutive increase since September.**
Semiconductor costs led the gain, with prices in the computers, electronics, and optical equipment category climbing 2.3 percent. Flash memory jumped 6.0 percent and DRAM semiconductors surged 15.1 percent, while industrial goods overall added 0.4 percent, pushing up the headline index.

**Bank of Korea data show both the Domestic Supply Price Index and the Total Output Price Index rising 0.4 percent in December 2025, indicating that domestic and export sectors contributed equally to price pressures.**
BOK officials say the extent to which producer price increases pass through to consumer prices will depend on company pricing strategies, prevailing business conditions, and government inflation measures. They also advise monitoring falling global oil prices for potential offsetting effects on inflation.

**The semiconductor industry has entered a “hyper bull” phase fueled by robust demand for memory chips, especially from expanding AI server deployments.**
Counterpoint Research projects memory chip prices could rise 40 to 50 percent quarter-on-quarter in early 2026, possibly surpassing the 2018 peak. Experts attribute current shortages—particularly in general-purpose DRAM—to a structural shift as manufacturers focus on high-bandwidth memory expansion.

**Major producers are responding by boosting capacity.**
Micron Technology plans to acquire Powerchip Semiconductor’s P5 fabrication plant in Taiwan for $1.8 billion, aiming to accelerate DRAM output by mid-2027. This approach should alleviate memory chip shortages faster than building new facilities, which typically require over five years to come online.

**South Korea’s leading memory firms are expanding as well.**
SK hynix is developing its Yongin semiconductor cluster, slated to begin operations in February 2027, and has already started HBM production at its M15X plant. Samsung Electronics is constructing its P4 and P5 fabs with a target of full operation by 2028. Both companies are evaluating US fab investments estimated between $67 billion and $81 billion for 2027–2030, aiming to sidestep potential tariffs despite only about 8 percent of Korean semiconductor exports going directly to the United States.

**In Japan, Advantest—a semiconductor inspection equipment maker—has seen its share price triple over two years to around ¥22,000 as of January 2026, with a market capitalization of ¥16.46 trillion.**
The company commands an estimated 60–70 percent share of the HBM tester market and holds a near-monopoly on AI accelerator inspection systems. Its testers validate next-generation GPUs from NVIDIA and AMD as well as memory products from Samsung, SK hynix, and Micron. Advantest plans to boost production capacity by more than 70 percent by the end of 2026, and global investment banks forecast operating profits exceeding ¥350 billion for that year.

**South Korea’s export performance in January 2026 underscored the semiconductor sector’s key role in the economy.**
In the first 20 days of the month, total exports rose 14.9 percent year-on-year to $36.36 billion, driven by a 70.2 percent surge in semiconductor shipments to $10.73 billion, which accounted for 29.5 percent of all exports. Exports to China climbed 30.2 percent to $8.45 billion, and shipments to the United States grew 19.3 percent to $6.66 billion despite existing tariffs. Imports over the same period increased 4.2 percent to $36.98 billion, resulting in a $600 million trade deficit. In December 2025, exports expanded 13.4 percent year-on-year to $69.6 billion—marking the 11th consecutive month of growth—and annual exports for 2025 reached a record $709.7 billion.

### IMPACT ANALYSIS
**From this Development, various impacts could cascade through the system, to a lesser or greater extent, depending on the severity and criticality of the shocks.**

Domain	Causal Chain	Possible Outcome
Macroeconomics & Growth	(Semiconductor export boom ↑ → Terms-of-trade index ↑ → Current-account balance (% GDP) ↑ → Potential GDP growth revision ↑ → Real GDP growth ↑)	The enhanced terms of trade and external surpluses will underpin upward revisions to potential output and drive stronger real GDP growth.
Macroeconomics & Growth	(Memory chip price surge ↑ → Import-price pass-through ↑ → Headline CPI/Core CPI ↑ → Inflation volatility ↑ → Inflation-targeting credibility ↓)	Rising import-price pass-through and inflation volatility may erode confidence in the central bank’s ability to keep inflation near its 2 percent target.
Competitiveness	(Semiconductor export boom ↑ → Trade-openness & preferential access ↑ → Real export market-share change ↑ → High-value-added export share ↑ → Total-factor productivity level vs frontier ↑)	Greater preferential access and high-value trade gains will accelerate productivity convergence toward the global frontier.
Macroeconomics & Growth	(DRAM price surge–driven profits ↑ → Capital-formation rate ↑ → Business fixed-investment growth deviation ↑ → Private fixed-investment growth ↑ → Potential GDP growth revision ↑)	Surging profits will finance elevated business investment, prompting analysts to hike potential GDP growth estimates.
Macroeconomics & Growth	(Memory chip price surge ↑ → Global-value-chain reconfiguration velocity ↑ → FDI net inflow (% GDP) ↑ → Foreign-owned green-field project count ↑)	Accelerated value-chain shifts will draw substantial FDI and increase foreign-owned greenfield semiconductor projects.
Firms	(South Korean PPI inflation ↑ → Supply-chain restructuring cadence ↑ → Supplier-delivery-times index ↓ → End-to-end supply-chain lead-time deviation ↓ → Capacity-utilisation in manufacturing ↑)	Faster supply-chain restructuring and reduced lead-time variability will boost manufacturing capacity utilization.
Technology & Innovation	(Strategic-sector export risk ↑ → Dual-use export-control restrictiveness ↑ → Semiconductor fab utilisation rate ↓ → AI inference cost index shift ↑ → AI adoption GDP uplift ↓)	Tighter export controls will reduce fab utilization, raise AI inference costs, and dampen AI-driven GDP gains.

### BOTTOM LINE

- Robust AI-server demand has driven a pronounced memory-price cycle—general-purpose DRAM is projected to rise 40–50 percent quarter‑on‑quarter in early 2026—which has already lifted South Korean producer prices for four months and increases the likelihood of pass-through into consumer inflation unless firms absorb costs or falling oil prices offset the effect.

- The 70.2 percent year‑on‑year surge in semiconductor exports in early January 2026, which made semiconductors 29.5 percent of exports in the period, will materially improve South Korea’s terms of trade and current‑account receipts and is likely to justify upward revisions to potential GDP and stronger near‑term real growth if export strength persists beyond cyclical inventory adjustments.

- Elevated memory prices have translated into outsized cash flow for producers, which is accelerating capacity expansion via faster routes such as M&A (Micron’s $1.8 billion P5 acquisition) and large greenfield builds (SK hynix Yongin, Samsung P4/P5), and these actions should begin to relieve shortages by mid‑2027 to 2028, exerting downward pressure on prices over a 12–24 month horizon.

- Because acquisitions and new fabs take time to raise output, the market is likely to remain tight and price‑volatile through most of 2026, sustaining producer‑price pressures and complicating the Bank of Korea’s policy trade‑offs between containing inflation and supporting growth from the export boom.

- Firms across semiconductor supply chains are already shortening supplier lead times and raising capacity utilization, which will increase manufacturing investment and capital formation, tighten upstream markets for equipment and materials, and improve end‑to‑end reliability even as costs remain elevated.

- Tighter export controls or wider dual‑use restrictions would slow the flow of specialized equipment and materials, reduce fab utilization, raise unit costs for advanced memory production, and could slow global AI deployment by increasing AI inference costs and reducing downstream adoption rates.

- Equipment and testing suppliers are capturing disproportionate gains from the cycle—Advantest’s tripled share price and planned >70 percent capacity increase through 2026 demonstrate that test‑equipment makers and suppliers will continue to benefit and attract investment and talent over the next 12–18 months.

- The cycle is prompting value‑chain reconfiguration and potential US‑based investments (Korean firms evaluating $67–81 billion in US fabs for 2027–2030), which will increase FDI and diversify production footprints but will be costly and slower to deliver than near‑term capacity relief achieved through acquisitions and existing expansions.

- Policymakers and central bankers should monitor corporate pricing strategies, oil‑price trajectories, and the pace of announced capacity coming online, and consider targeted fiscal or regulatory measures (capex incentives, temporary subsidies, or macroprudential tools) to smooth consumer‑price effects while preserving incentives for private investment in domestic semiconductor capacity.

- Procurement and downstream firms should plan for sustained higher electronic‑input costs through 2026 by locking supply contracts, using hedges or pass‑through clauses, and exploring strategic partnerships or localized sourcing to mitigate exposure and secure long‑lead components.

Monitored Intelligence for South Korea - Jan. 23, 2026

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257

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24

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0

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Lee slams political-religious collusion as 'path to national ruin' in New Year's press conference

Joongang Ilbo | English | News | Jan. 23, 2026 | Communal and Religious Strife

President Lee Jae Myung condemned the collusion between politics and religion as a "path to national ruin" during his New Year's press conference on January 21, 2026. He highlighted the unacceptable use of religious groups like the Unification Church and Shincheonji Church of Jesus in political election meddling and called for stern punishment of such acts. Lee responded to recent accusations that these organizations influenced political processes, including bribery and mass mobilization to sway primaries and elections. Religious leaders meeting with Lee also urged the disbanding of illegitimate religious organizations.

Lee outlined a national growth strategy centered on five key pillars: regionally-led growth, inclusive growth, safety-based growth, culture-driven growth, and peace-supported growth. He emphasized the need for a "great leap forward through a great transformation" as existing strategies fail to ensure future development. Lee pledged continued efforts to combat irregularities, unfair practices, and to pursue prosecutorial reform geared toward fairness and efficiency, with potential allowances for limited supplementary investigations.

On economic issues, Lee acknowledged concerns over the Korean won's recent weakening but said the government would take measures to stabilize the exchange rate. He expressed confidence that the won’s value would recover within one or two months and positioned this as a relatively stable situation compared to other currencies. On industrial and policy matters, Lee addressed the ongoing political debate about the Yongin semiconductor cluster project, insisting that companies choose locations based on profitability rather than political pressure, and reaffirmed government commitment to the existing plan.

Regarding housing prices and taxation, Lee noted taxes should primarily secure national finances and not be used primarily as regulatory tools, reserving such measures as a last resort. On nuclear power plant construction, he advocated for decisions based on necessity, safety, and public opinion, warning against overturning policies simply due to administrative changes, in the interest of policy stability and sustainability.

The 173-minute press conference, Lee's longest to date, included 25 reporter questions and a mix of serious policy discussion and lighter moments, such as his humorous response to questions about his close relationships with aides.

Korea becomes 1st nation to enact comprehensive law on safe AI usage

Joongang Ilbo | English | News | Jan. 23, 2026 | Regulation

Korea has become the first country to enact a comprehensive law regulating the safe use of AI, known as the AI Basic Act, which took effect on January 22, 2026. The law was passed by the National Assembly on December 26, 2024, with overwhelming support. It establishes a regulatory framework aimed at combating misinformation and other harmful impacts of AI technologies.

The AI Basic Act introduces the concept of "high-risk AI," referring to AI models that significantly affect users' lives, such as those used in employment, loan reviews, and medical advice. Companies using high-risk AI must notify users and ensure safety. AI-generated content must carry watermarks to indicate its origin, a measure designed to prevent misuse such as deepfake content.

The law requires global AI service providers meeting specific financial or user thresholds to appoint a local representative in Korea. OpenAI and Google currently meet these criteria. Violations can result in fines up to 30 million won, though a one-year grace period has been established for compliance adjustments. The government will also promote the AI industry, with the science minister mandated to release a policy blueprint every three years.

Firefighters battle wildfire raging in Busan for 2nd day

Korea Herald | English | News | Jan. 23, 2026 | Natural Disasters

A wildfire has been burning on a mountain in Busan for a second day, originating at a tile factory in Gijang county on Wednesday evening. The fire spread to a nearby hill, prompting the evacuation advisory for around 30 people from a local resort. No casualties have been reported so far.

As of early Thursday morning, 65 percent of the 11-hectare fire was under control, with around 340 personnel including firefighters, police, and forestry officials working to contain it. Authorities plan to deploy 17 helicopters, five of which are military, to combat the fire amid strong wind forecasts of up to 15 meters per second.

The Korea Forest Service and local fire authorities have warned of dry conditions in Busan, increasing wildfire risks in the area. Efforts continue to prevent further spread of the blaze amid these challenging weather conditions.

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