Weak yen leaves gov't clueless

By Yoon Ja-young

The weak yen is hurting Korean exporters, but the government has few options left. Experts believe the businesses should enhance their competitiveness.

According to a Korea Chamber of Commerce and Industry survey of 300 exporters competing with Japanese companies in the global market, 55.7 percent of the companies said the weak yen had damaged their business.

These companies said 924 won per 100 yen was the threshold of the rate at which they could survive, but the rate had already fallen to near 900 won per 100 yen. Many exporters said they were selling at a loss to maintain their relationship with foreign buyers.

Asked how much decrease in exports they expected when Japanese competitors cut prices by 10 percent, the Korean companies said the exports would fall by an average of 11.7 percent.

The won has been strengthening amid massive quantitative easing by major economies, including Japan and the EU ― it has appreciated 36 percent against the yen since 2013, and 14.71 percent against the euro since the latter half of last year.

However, the government is left with few options.

First, it is not easy for Korea to weaken its currency through quantitative easing, because the won is not an international currency.

The U.S. key rate hike that is expected in the latter half of this year is also limiting Korea’s options because the hike may lead to an exodus of dollars from Korea.

“It isn’t easy to induce a weak Korean won when nobody can be sure that the financial market will be stable in the future,” said Choi Mun-bak, a researcher at LG Economic Research Institute.

“Moreover, the major trading partners are pressuring for the won to appreciate further, citing the massive current account surplus,” he said, pointing to the U.S. Department of Treasury’s pressure on the Korean Government.

In its semiannual report, the U.S. Department of Treasury continued to accuse Korea of intervening in foreign exchange markets to artificially lower the value of its currency.

“Refraining from intervention and allowing more space for won appreciation would help with rebalancing and encourage a reallocation of productive resources to the non-tradable sector,” the report said.

“Treasury has intensified its engagement with Korea on these issues. We have made clear that the Korean authorities should reduce foreign exchange intervention, limiting it to the exceptional circumstance of disorderly market conditions, and allow the won to appreciate further,” the report noted, even though the won has appreciated notably against major currencies.

Choi said businesses should prepare measures for survival.

“They should thoroughly examine the foreign exchange market,” he said. “They should pay attention not only to the won/dollar rate but also the rates against other major currencies.”

He said the businesses should be actively managing foreign exchange risks because volatility was likely to increase.

“In the mid- to long-term, it is essential to decrease the risks by diversifying the export markets as well as the currencies for settlement,” Choi said.

However, in the Korea Chamber of Commerce and Industry survey, 70 percent of the companies said they had not prepared any measures against the weak yen.

The chamber said Korean companies should restructure their operations and enhance competitiveness to survive.