By Cho Jin-seo
One way to measure the won-yen exchange rate is to go to the shopping district of Myeongdong and count the number of tidily dressed, camera-waving Japanese tourists around the food stalls. A strong yen brings in more Japanese tourists, and a weak yen means less. But as for Korean tourists going to Japan, this rule of thumb isn't as easily applied.
Because the yen is strong and the won is weak this summer, Koreans were supposed to stop taking flights to Tokyo or Hokkaido. But, this hasn’t been the case.
“Actually, this is the best year we’ve ever had,” says Kim Jong-hoon, a manager at Modu Tour, a large tour agency here. Kim’s department sells Koreans package tours to Japan, and this summer’s sales will be the highest in the firm’s history regardless of the unfavorable exchange rate, he says.
“The high yen does not discourage people anymore. It seems that Koreans are now taking this level of exchange as natural,” he says.
The financial crisis has made many Koreans somewhat numb to the volatility of the foreign exchange rate. The yen is a good example. It has appreciated rapidly this year in the global currency market, reaching a 15-year high against the U.S. dollar earlier this week. Most economists think the reason for this is that global investors are seeking a safe haven in the stable financial system of Japan and its rock-solid currency.
The same story goes for the yen-won exchange rate, but with a twist. The Korean won depreciated greatly during the 2008-2009 financial crisis. At the peak of the panic, it took more than 1,600 won to buy 100 yen at a bank, while it had taken only 750 won for the same amount in 2007. Compared to that, the current price of around 1,380 won to 100 yen is not really a big shock to the Korean economy and its constituents, analysts say. In other words, Koreans have developed immunity to a strong yen.
Traditionally, it was believed that a high yen and weak won most benefitted Korean car and electronics companies, such as Hyundai and Samsung. They compete in the global market with Japanese firms Toyota and Sony, so with the advantage of a cheap national currency they can sell the same product cheaper than their rivals.
But this summer, the currency effect is not so clear. Stock prices of Hyundai and Samsung have both shown sluggish movements despite the rapid jump in the yen’s value against the dollar, the global currency of trading.
“The yen has been around this level for over a year and a half, so its implications are already well reflected in Korean firms’ stock prices,” said Kim Sung-no of KB Investment & Securities.
Some firms are more actively adapting to the climate in anticipation of a long ascent of the yen. A Korean subsidiary of a major Japanese camera maker said it has changed its internal accounting and auditing standard from yen to won, because a strong yen made them look very bad during the financial crisis.
“We have learned a lesson that the yen is more likely to go up and down. So we changed our accounting standard from yen to won,” one of its managers said on the condition of anonymity. “Many firms doing business between Japan and Korea are doing the same.”
For the firm, the fiscal year 2008 was a nightmare, as they had to raise the retail price of cameras in Korea, or sell them at a loss. The result was reduced sales (in terms of yen) and a massive operating loss in the fiscal year that ended in March 2009.
“So this year, we don’t worry a bit about the exchange rate. It was a good decision to change the system,” he said.
The weakening of the Korean won is actually in line with historic trends. When 1977, when the Bank of Korea made its statistics available, the won-yen rate was only 174 won per 100 yen.
In 1980s, it climbed to 500 won, and to 800 won in the late 1990s. This decade, the fluctuation has become wider because of a series of currency crises, but regression analysis shows that the rate is following historic trends in general ― an indication that Korean people have experienced more rapid inflation over the years.