We investigate the implications of the disaster hypothesis proposed that changes in the probability of the outbreak of a rare disaster and/or expected damage caused by a rare disaster can make exchange rates fluctuate. Assuming that news articles reporting North Korea’s actions that raise tensions on the Korean peninsula affect the probability and expected damage of a disastrous war in the region, we find with the application of a nonparametric regression approach that the South Korean exchange rate depreciates significantly as the number of such news articles increase. We also show through an event study that the South Korean exchange rate depreciates significantly immediately after nuclear tests, although the duration of the significant depreciation is short. These findings are supportive evidence for the disaster hypothesis and another piece of evidence for the exchange rate disconnect puzzle. Finally, we observe that the response of the exchange rate to news escalating tension levels in Korea varies over time and that the time variability of the response is similar to the habituation learning process.