Bo-eun leads the digital content team. She has covered foreign affairs, North Korea, tech, economy and gender issues at The Korea Times. She did a short stint at the South China Morning Post in Hong Kong, where she obtained a new perspective on news production and life. Small sources of joy for her are lounging in the sun, having a good latte and swimming.
Weak yen hits carmakers, chemical firms hardest
A street in Myeong-dong, one of the busiest shopping districts in downtown Seoul, stands deserted due to the drop in the number of Japanese tourists amid the depreciation of the yen, which makes it more expensive for them to travel here. The weak yen is affecting Korean businesses, with export items being hit the hardest, as they lose price competitiveness to Japanese products. Korea Times photo by Shim Hyun-chul
By Kim Bo-eun
By Kim Bo-eun
The weak yen has become a popular topic in the country since the end of last year. Triggered by the Japanese government’s expansionary fiscal and monetary policies, the depreciation of the currency is affecting businesses here more negatively than positively, and analysts say that the weak yen is likely to continue for some time.
Winners and losers
Analysts say Korea is likely to be hit the hardest in Asia by the declining value of yen because it competes the most with Japan in export.
According to Kang Hyun-gu, economist at Hyundai Securities, competition is most intense in the automobile, machinery, electronics and chemical industries, Korea’s major export businesses.
“There are concerns of declining profits at companies in such industries, because they lose price competitiveness amid the weak yen,” he said.
However, in the case of the IT industry, while competition is high, the influence of the weak yen will remain insignificant as Korean smartphones and TVs are still way more advanced than their Japanese counterparts, said Kang.
He added that in the case of chemicals, Japan also imports all of its raw materials, and therefore significant price discounts will be unlikely.
“But for the automobile and machinery industries, if Japanese products were to be promoted through price discounts, these industries are bound to be affected, with Hyundai Motor, Kia Motors and Doosan Infracore among the ones that will suffer the direct effects,” Kang said.
Other analysts echoed the view that the automobile industry will suffer the greatest blow.
Cho Byung-hyun, market analyst at Tong Yang Securities, said the automobile industry is among those that will be hurt by the weak yen. “Hyundai Motor and Kia Motors as well as auto parts maker Hyundai Mobis will be adversely affected,” he said.
According to Kim Byung-yeon, strategist at Woori Investment & Securities, companies in the automobile, steel and chemical industry will lose their price competitiveness in comparison to their counterparts.
Lee Da-seul, strategist at Korea Investment & Securities, said the sectors that are bound to be negatively affected are rival companies of Japanese manufacturing businesses such as automobile, auto parts and display firms. He added that hotel businesses will lose Japanese customers, and food and beverage companies that rely on exports to Japan will be adversely affected as well.
As for the beneficiaries of the weak yen, Cho said they include Japanese companies listed on the local bourse such as SBI Mortgage or SBI Global as well as companies that import industrial parts from Japan such as HNK Machine Tool and Innox.
Kang said SK hynix will benefit as it will be able to save material costs due to the weak yen.
According to Lee, pharmaceutical companies that import raw materials from Japan will benefit. Other beneficiaries will include firms that have debts in yen and travel agencies, which will benefit from the increasing number of Korean travelers to Japan, he said.
Kim shared this view.
“Those benefitting are the Korea Gas Corporation and Lotte Shopping, which have less of a burden in repaying their debts in yen,” he said. “Hana Tour is also bound to benefit as it sees the number of Korean tourists to Japan returning to the level before the earthquake in 2011.”
Forecasts for yen depreciation
Analysts seem to agree that the weak yen will continue for some time. According to Cho, the yen may temporarily fall below 100 against the U.S. dollar due to increasing volatility, but the trend of the weak yen shows signs of continuing for the long term.
“The yearly average yen-dollar exchange rate is expected to be above 100 yen,” he said. “Continuous and large-scale quantitative easing by the Japanese government and additional intervention in order to prevent side effects are expected to cause the fall in the yen’s value.”
Kang said, “The yen-dollar exchange rate had drawn attention to the yen as being a safe currency during the global financial crisis. But as of now, with global risk factors having been alleviated, the exchange rate is in the process of going back to where it was before the financial crisis, and therefore the depreciation of the yen is expected to last for some time.”
“However, now that the exchange rate has surpassed 100 yen, the rate of the depreciation is likely to slow down.”
Lee said, “The yen has quickly depreciated in accordance with the easing policies of Abenomics, and such conditions are likely to continue. Some forecast that the yen-dollar rate may rise to 110 yen by the end of the year.”
Abenomics refers to the expansionary economic policies of Japan’s Prime Minister Shinzo Abe.
On the other hand, others view that the weak yen will soon come to an end. According to Kim, some expect the depreciation of the yen will ease starting at the end of May.
“The depreciation of the yen, which began in November last year, was reflected in the export index, and therefore eased the need for additional depreciation. In addition, the rise in import price has put a burden on the disposable income of Japanese households, raising the need to stop depreciating the currency,” Kim said.