The yen’s value has fallen more sharply than the won, significantly impacting South Korean trade. (Image courtesy of Yonhap)
SEOUL, Jul. 5 (Korea Bizwire) – The widening interest rate gap between Japan and the United States has led to a “super weak yen” phenomenon, creating an unexpected hurdle for South Korea’s previously robust export sector. As the U.S. maintains high interest rates, the dollar continues to strengthen, but the yen’s value has fallen more sharply than the won, significantly impacting South Korean trade.
An analysis commissioned by the Maeil Business Newspaper and conducted by the Korea Enterprises Federation revealed that the weak yen reduced South Korea’s export revenue by $7.5 billion in the first half of this year. This decline is attributed to the increased price competitiveness of Japanese products, which often compete directly with South Korean exports.
The impact of the super weak yen extends beyond exports, reshaping investment and consumption patterns. The increased purchasing power of the won has boosted the popularity of Japanese consumer goods in South Korea, while also spurring a surge in travel to Japan and demand for yen currency exchange. Additionally, there’s a growing trend of South Koreans investing in Japanese real estate, taking advantage of the favorable exchange rate.
On July 4, the won-yen exchange rate reached 855.56 won per 100 yen in the Seoul foreign exchange market, the highest level since January 10, 2008. This marks a 16-year low for the yen against the won. The yen has also hit a 37-year low against the dollar this month.
The study found that for every 1 percentage point decrease in the yen’s value, South Korea’s export growth rate drops by 0.53 percentage points. Applied to the first half of this year, this model suggests that the weak yen has reduced South Korea’s cumulative exports by $7.48 billion, from a potential $342.3 billion to $334.8 billion.
Professor Seok Byoung-hoon of Ewha Womans University expressed concern, stating, “Given the high degree of competition between South Korean and Japanese exports, a sustained weak yen could significantly impact our companies’ exports to the U.S.”
The situation has prompted calls for government action. Professor Kang Sungjin of Korea University suggested, “To counteract the effects of the weak yen on export competitiveness, we need to strengthen investment tax credits and ease regulations in industrial innovation sectors, including R&D investment and patents.”
M. H. Lee (mhlee@koreabizwire.com)
