Korean exporters used to say they were more scared of the Japanese yen’s weakness than North Korea’s nuclear threat. Now that the G20 meeting in Washington last week all but endorsed additional monetary easing by Tokyo, local firms’ fears are turning into panic.
Some media outlets are fanning the industry’s anxiety, describing Japan’s monetary policy as a “double whammy,” in addition to the Japanese government’s nationalistic offenses against other Asian countries.
These concerns are not entirely without grounds. Although Tokyo claims its artificial currency devaluation is to reawaken domestic demand ― as its backward-looking diplomacy is aimed at mustering the support of right-wing voters ― it is nonsense to think the major policy turnaround by the world’s third-largest economy will not spill over to its neighbors.
It’s little surprise then that the biggest victims of Japan’s beggar-thy-neighbor policy are Korean companies, the major export items of which have to compete with Japanese goods in global markets. Studies show if the Japanese currency falls to 100 yen per U.S. dollar, Korea’s exports will decline 3.4 percent, and if the yen drops further to 110, the nation’s foreign shipments will suffer an 11.4-percent setback.
Dismal as the current economic environments are, Korean government and businesses can ill afford to just keep complaining. In a way, Japan, which has endured far steeper currency appreciation for decades, and its industry have enough right to seek some breathing space. Now it’s the turn of their Korean counterparts. The Park Geun-hye administration and the nation’s major corporate players, however, do not seem to be going in the desirable direction.
The finance ministry is busy avoiding responsibility for its diplomatic failure to deter the further weakening of the Japanese yen at the G20 talks, while the business community is bent on complaining about the uncertainty in the new government’s economic policy. It’s not the crisis itself but the way the government and private sector is coping with it ― namely the officials’ buck passing and industry’s fretting ― that deepens popular concerns about the nation’s economy. This should be no time for finger-pointing between the two pillars of the national economy.
Most problematic is the apparent inconsistency in key economic directions of Park and her aides. For example, they emphasize the need to change large conglomerates’ unfair business practices one day, then call for further deregulating them the next, causing confusion within the business community, and among many working-group bureaucrats, also.
Park needs to be firmer in charting her economic course. Seoul should stage more active, persistent financial diplomacy to keep the Japanese yen from falling beyond certain limits, while considering introducing taxation on capital flow. The government ought to induce capital spending by firms through taxing retained earnings that are not invested. Park must tell her government to positively help exporters, particularly smaller ones, bet all on tiding over the currency appreciation through enhancing quality.
Now is the time to show what “Geunhyenomics” is ― and how it works.