Bank of Japan's hawkish pivot won't affect Korean economy much, analysts say

Bank of Japan Governor Kazuo Ueda stands at the end of a press conference at the Bank of Japan headquarters in Tokyo, Japan, Tuesday. EPA-Yonhap

The Bank of Japan's (BOJ) hawkish pivot could boost near-term growth for Korea's semiconductor, automobile and shipbuilding industries that are in competition with their Japanese counterparts, experts said Wednesday.

However, the impact of the mild strengthening of the Japanese yen as a result of the monetary policy may not be significant enough to disrupt the status quo of the global market for the two countries. This is because they are no longer in direct competition on the international stage, where product quality and demand increasingly hold greater sway over price advantages. 

At play to a greater extent is the global trend of embracing U.S. dollar-settled transactions, a reason why the U.S. Fed policy is a far more critical market condition development.

Some suggest that Korea's equity market stands to benefit, buoyed by the subdued growth of the Japanese stock market due to the appreciating yen. Foreign investors are more likely to opt for stock investment in Korea with weaker currency compared to the strengthening yen. 

But overall, yen-driven factors are not nearly as consequential as the movements of the U.S. greenback closely tied to the Fed policy for the Korean financial market.

A six-year high deficit in travel accounts of $12.25 billion (16 trillion won) last year could see a breakthrough. Over 6.96 million Koreans visited Japan last year amid a record-low yen, whereas only 2.31 million Japanese tourists came to Korea.

The BOJ raised the key rate to a range of zero to 0.1 percent from minus 0.1 percent on Tuesday, marking the first rate increase in 17 years that ended an eight-year-long negative rate policy.

Improved conditions

"Korea's major export growth drivers can ease into more favorable market conditions," Yang Hye-jeong, a researcher at DS Investment & Securities, said. 

"Key manufacturers can have a greater footing in the global market, long been skewed in favor of their Japanese counterparts due to the sustained depreciation of the Japanese currency."

A stronger yen does not necessarily translate to an immediate and immense boon for Korean exporters, since global currencies across the board are affected, Yang added.

"The U.S. currency holds more significance and implications than Japan's currency, considering U.S. currency exposures to Korean firms with a global market presence."

Huh Jae-hwan, a researcher at Eugene Investment & Securities, said that a hawkish BOJ restoring the value of the chronically weak yen is bad news for the Japanese stock market, which in turn is great news for Korea.

"History suggests that a weak won against the yen tends to propel the vibrancy of the Korean equity market compared to Japan's."

Market watchers say the focus now is on the March meeting of the Federal Open Market Committee, the Fed's rate-setting body.

The future course of the Korean stock market will be more clearly determined after the Fed policy is unveiled, Huh said.

"The implication of Japan's monetary policy does not carry the same weight as the Fed's. The U.S. decision will have a much more significant impact on the policy path of the Bank of Korea."