As Japan slips into recession, South Korea is keeping an increasingly wary eye on its export rival’s free-falling currency, which is honing a lasting competitive edge over Korean products in a number of key markets.
The massive fiscal stimulus and flood of easy money unleashed by “Abenomics” has sent the Japanese yen plunging to multi-year lows against a basket of major currencies, AFP reported.
In the past two years, the yen has lost around 33 percent of its value against the US dollar and 35 percent against the Korean won -- a depreciation that has triggered public expressions of concern in Seoul from industrialists, politicians and monetary policy-setters.
A weaker yen makes Japanese exports cheaper, which impacts countries such as South Korea that are direct competitors in a number of key sectors.
Bank of Korea (BOK) governor Lee Ju-Yeol promised earlier this month that it would not “sit idle” despite the limited tools it can deploy to counter the falling yen.
At its monthly monetary meeting on November 18, the BOK kept its key interest rate unchanged at 2.0 percent, but Lee underlined the “worrisome situation” regarding the Japanese currency.
If Japanese companies up the ante still further by slashing export prices, then South Korean companies in the auto, steel, machinery and shipbuilding sectors are “bound to suffer”, Lee said.
Auto Woes
The advantage Japanese exports gain from the falling yen makes life particularly difficult for South Korean companies such as Hyundai, the world’s fifth largest automaker.
“The biggest risk for us now is eroding price competitiveness due to the weak yen,” Hyundai’s chief financial officer Lee Won-Hee said last month after the firm announced a 30 percent plunge in third-quarter net profit. For years, Hyundai Motor and its smaller affiliate Kia had eaten into the overseas market share of Japanese giants like Honda and Toyota.
Between 2005 and 2012 they almost doubled their combined US market share to 8.7 percent, but that fell back to 8.1 percent last year.
Japanese carmakers, meanwhile, have hammered home the advantage of the weaker yen by boosting sales incentives to new buyers in the United States.
Shipbuilders Feel the Heat
South Korean shipbuilders, who had been racing neck and neck with China to top the list of global orders, are also feeling the heat.
In April, they were beaten into third place by their Japanese competitors for the first time in 15 months, according to data from the industry tracker Clarkson, which also had Japan ahead in June and September.
The portfolios of South Korean and Japanese shipbuilders overlap significantly in the merchant ships and liquefied natural gas (LNG) carrier sector.
According to the Korea International Trade Association, more than half of all South Korean exports are in direct competition with made-in-Japan goods.
