Weak Yen Adds to Woes Confronting South Korea's Park
South Korea's new president faces a hostile North Korea that seeks nuclear weapons, a moribund domestic economy and now new pressure on its exporters and growth prospects from neighboring Japan's yen devaluation.
There is little Park Geun-hye, who will become South Korea's first woman president on Monday, can do about the North but her first statement on the economy indicated she was willing to try at least to talk down the Korean won's rise.
"As the global economy hasn't recovered from recession yet our companies are having more trouble as the weak yen offensive is following," she said at a meeting with the Korea Employers Federation on February 20, according to her Youtube site.
Her remarks have gone down well with those suffering most from Japanese Prime Minister Shinzo Abe's hyper-easy monetary policy that has seen the won jump five percent this year versus the yen after a 23 percent gain in 2012.
South Korean and Japanese firms compete against each other in a range of products, from cars to televisions and computer chips.
"It was very encouraging when Park Geun-hye said she would take pre-emptive currency measures," said Cha Jae-sik, chief executive of snack and grocery exporter Sammi Commerce Co, which has some $10 million in annual revenue.
"No other presidents have said that before and I really expect a lot from Park and real steps to help small exporters like us."
The won is at 11.63 to the yen, levels last seen in October 2008, but still 50 percent weaker than the sub 8 won levels seen in 2007, before the start of the global financial crisis.
Thomson Reuters data shows it is valued around 5 percent higher than its 10-year average against both the yen and the dollar in trade-weighted and inflation-adjusted terms.
Park's team is looking at plans to reduce fund flows to limit the won's appreciation and could consider a "Tobin Tax" on bond market transactions as well as tightening ceilings on bank holdings of currency derivatives.
South Korea's central bank has routinely intervened in the market to staunch the rise in the won, or at least to try and prevent to rapid an appreciation in "smoothing" operations, although it has never undertaken anything near the scale of Japan's easing.
Many Big Companies relatively Immune
Sensitivity analysis from Credit Suisse shows that for a one percent fall in the yen-won rate, South Korean exports will underperform Japan's by 1.1 percentage point over 3-6 months.
The impact however varies greatly from industry to industry, with larger electronics companies saying the yen was not their major concern, although auto companies and smaller businesses said it was a big issue.
Samsung Electronics, the country's biggest exporter, said its operating profits were negatively impacted by 360 billion Korean won ($331.45 million) due to a stronger won against the Chinese yuan and the Brazilian real.
The won gained steadily last year from a low of 185.20 to the yuan and is now trading around 174.
Yoon Boo-keun, head of Samsung's consumer electronics division, which makes televisions, fridges, washers and ovens, said this week the impact of the stronger won was limited as so much of its production is now overseas.
"Only those products exported from Korea are affected by the won exchange rate, but the amount is small," he said.
It is a similar picture at rival LG Electronics where Havis Kwon, head of the group's television business said last week he was more worried about aggressive competition from China than by the yen's weakness.
"A weakening yen wouldn't have any major immediate impact on us, although it will help Japanese competitors gain price competitiveness in general, but that's something we can manage to overcome with various measures," he said.
Carmaker Hyundai Motor appears to feel more vulnerable. A top executive said recently the company was "agonizing" over exchange rates as it sought to keep its profit targets.
"One way to do that (hit the targets) is to maximize overseas production and volume ... We will also increase sales of profitable, mid-and large-sized vehicles," he said, speaking on condition of anonymity.
That's not an option for smaller businesses in Korea.
"About one-third of our member companies in competition with the Japanese said in a recent survey that they noticed price reductions or moves of reductions (in dollar terms) by Japanese competitors after the yen slide," said Austin Chang, a research fellow at the Institute for International Trade.
The institute is run by the Korea International Trade Association with membership of some 70,000 trading firms.
"The majority of our member companies want the government to ensure the won's rise is done more smoothly even if the rise itself is inevitable," Chang said.