By Yoon Ja-young
Japanese Prime Minister Shinzo Abe is continuing with "Abenomics," an economic policy based on massive quantitative easing and weakening of the yen, which Japan claims will save it from its "lost" two decades.
While Japan has partly succeeded in boosting its economy, that seems to be based on the sacrifice of other countries, of which Korea has been hit the hardest.
Lee Bu-hyoung, senior research fellow at the Hyundai Research Institute, said Abenomics is exploiting other countries.
"As each country is in a different economic situation, the other countries may be damaged if one of them only pursues its own interest through totally new policies. The foreign exchange rate is an example," he said.
The researcher stressed that it is against WTO regulations to manipulate foreign exchange rates. "By devaluating its own currency, the country can increase exports while decreasing imports, earning more from trade. The gain, however, is based on the loss of other countries."
He said that the international community seems to be tolerating Japan's manipulation as it has been in such a long slump.
However, Korea is concerned that it will be the biggest victim of Japan's "beggar thy neighbor" policy.
"Countries like Korea and Germany, where exports take a huge part and the domestic market is relatively small, are damaged most. Korea is especially so, as its export items overlap with those of Japan," Lee said.
Korea has been suffering from the massive quantitative easing by Japan as the won/yen rate has fallen to the lowest level in more than seven years. The Hyundai Research Institute warns that Korea may see its exports, the only sustaining pillar of an economy that has lost steam, decrease by 8.8 percent due to the weak yen. The tourism industry is also suffering as the number of Japanese tourists is decreasing.
Park Jong-kyu, a senior research fellow at the Korea Institute of Finance, meanwhile, said that the Japanese yen is returning to its normal level after too steep of an appreciation after the global financial crisis.
"The Japanese yen went to 79 yen per dollar from 120 yen per dollar during the global financial crisis as global funds were pouring into Japan. Its exports suffered. There was a kind of global consensus that Japan should depreciate its currency to get out of deflation," he said.
Even so, Park added that the global community may not tolerate if Japan further depreciates its currency. "Some multinational companies in the United States have started complaining about the decreasing net profit on the strong dollar (against yen). They may take issue with Abenomics from now on."
Chung Duck-koo, chairman of the North East Asia Research Foundation who served as vice finance minister and industry minister after Korea was hit by the Asian financial crisis, said policymakers are aware of the fact that any policy they choose will affect neighboring countries, whether positively or negatively.
"The point here is that Abenomics is based on ‘manipulation' of the foreign exchange rate. It aims at vitalizing the economy by controlling the exchange rate through monetary policies. That does affect neighboring countries like Korea, which have a non-world currency and thus no way to defend themselves."
He said that's why there should be policy coordination with neighboring countries in advance. "We can't blame Japan for trying to vitalize its own economy, but it should have explained the policy enough to neighboring countries."
Abe succeeded in boosting economic sentiment, but economists doubt whether Japanese economy will ever be as vital as in the past. "The positive effect hasn't reached the household sector enough yet, as real wages haven't been raised much due to rising import prices on the weak yen. Wage hikes surpassing inflation should follow to boost domestic consumption and small- and medium-sized enterprises' domestic output," Lee said.
Chung said there isn't a clear sign of the Japanese enjoying "wealth effects" from rising stock prices. "Japan seems to be recovering, starting from the stock market, but the positive effect isn't spreading to the real economy. It is too early to determine success or failure."