The Korean economy staggered previously when the Japanese currency remained weak, but the yen’s recent slide is making Korean manufacturers and exporters experience more pain. That’s because the currency shock has come amid the global economic slump and Korean companies are competing fiercely against their Japanese rivals around the world.
After falling below the 100-yen level for the first time in four years last week, the yen has been trading at 101-102 against the U.S. dollar this week. The Japanese unit has depreciated more than 17 percent since the beginning of this year. What’s fortunate is that the Korean currency has been losing its value of late, thereby offsetting the adverse impact partly on exports, which accounts for nearly 50 percent of the nation’s economic growth.
Nonetheless, the won-yen exchange rate hovers at around 1,090 won to 100 yen recently, compared with 1,234 won at the end of last year, when the yen devalued faster than the won. Moreover, the yen’s fall is forecast to continue for a considerable while with some investment banks expecting the yen to tumble down to 120 one year later. This concern is all the more plausible, given that the Group of 7 industrialized nations tacitly tolerated Tokyo’s monetary policy last week.
The yen’s slide is a boon to Japanese companies but a bane to their Korean rivals, especially in such key industries as automobiles, steel, electronics and shipbuilding. Its impact is more distressing because Korea’s economic growth has been less than 1 percent for eight quarters in a row amid the deepening stagnation in domestic demand. According to the Woori Finance Research Institute, Korean manufacturers are forecast to see their combined operating profits drop by 9 trillion won over the next year if the won and the yen are kept at 1,100 and 100, respectively, against the greenback. The Korea International Trade Association also predicts that a 10-percent fall in the won-yen rate would trigger a 4.1-percent drop in exports a year. Of course, some critics argue that the fear of the cheaper Japanese currency is overblown, noting that the yen is in the process of returning to normal after overshooting in the wake of the global financial crisis in 2008. There is also an argument that more Korean companies are able to cushion the currency shock thanks to their massive relocation of production facilities abroad.
Most problematic is that the government has few durable remedies and stops at providing cosmetic support measures such as soft loans for struggling exporters. Everyone already knows the answer: sharpening corporate competiveness through cost cuts, quality improvements and technical developments, but these are easier said than done.