By Yoon Ja-young
The government should take more aggressive measures to counter the weakening yen because the Japanese currency is expected to maintain its weakness over the next couple of years, economists said Friday.
They called for a policy mix incorporating foreign exchange, fiscal and interest rate policies, as well as boosting domestic consumption.
“The United States is delaying a key rate hike, and the euro zone and Japan are weakening their currencies through continuous quantitative easing,” said Korea Economic Research Institute President Kwon Tae-shin, at a seminar on how to cope with the weak yen, Friday. “China is also pushing to weaken the yuan by cutting the key rate and lowering the cash reserve ratio.”
The won, meanwhile, is continuing its appreciation on the steady inflow of foreign funds and the current account surplus. The won has appreciated 67 percent against the yen since June 2012.
Korean exporters competing with Japanese firms in the global market are losing price competitiveness, and the country’s exports have fallen four months in a row.
Kwon expected the yen to be weak for the next two or three years. “It will give a blow to Korea’s exports, weighing on the economy,” he said.
He said the government was not suggesting effective measures to cope with this.
“It concerns me that the economy may face a crisis seen in 1997 and 2008, which followed the yen’s weakness,” Kwon said.
Park Sang-hyun, an analyst at Hi Investment and Securities, said the weak yen was strengthening the corporate and product competitiveness of Japanese firms.
He pointed to the automobile and steel industries. “Despite the delay in the global recovery, Japanese firms are seeing a profit surge thanks to the weak yen,” Park said. “Korean firms, meanwhile, are in stagnation.”
Asia Finance Society President Oh Jung-geun said exports and growth will be hit because the won/yen rate would fall further in the latter half of the year.
He proposed regulations to check the inflow of foreign capital, “appropriate intervention” in the foreign exchange market and a policy mix comprising interest rate, foreign exchange and fiscal policies.
He also said the government should focus on boosting domestic consumption because the current account surplus was mostly due to a decrease in imports following sluggish domestic consumption.
Byun Yang-gyu, a research fellow at the Korea Economic Research Institute, said Japanese firms had started focusing on expanding market share by cutting prices. Previously, they enjoyed bigger profit margins following a weakening of their currency.
“The damage from a weak yen on Korean firms will continue,” he said, citing textiles, machinery and transportation equipment as the most vulnerable sectors.
He said measures should be taken for the automobile sector because it was competing with Japanese firms.
“Exports to ASEAN countries, which take 15 percent of Korea’s total exports, will take the brunt of the weak yen,” he said. “We need tailored policies for this.”