Weakening Yen Raises Concern

As the yen value has declined, the yen-to-dollar exchange rate is forecasted to near 130 yen per dollar. And since the value of the Korea`s won continued to increase, the won-to-yen exchange rate may decline to 1000 won per yen.

Because the continued weaker yen and stronger won will have a negative impact on the competitive edge of the Korean exporting goods, the economic authorities have feared at the possible fall of current account surplus.

▼ Will Won-To-Yen Rate Break 1,000 Won Line Per Yen?

The value of yen, which showed the strong trend to fall its rate against dollar down to 116 yen since the Sep. 11 terrorist attacks, radically turned down due to the murky prospect of the Japanese economy. The Japanese economy already faced the era of `zero interest rate`, and the Japanese government lacked any promising means for economic boost due to the burden from the massive public debts. So, it took the weaker yen as only a measure to tackle the lingering economic slump.

Furthermore, the U.S.`s consulting company, the Medley Global Advisors said in a report on 12th that the US supported for the Japanese banks` purchase of foreign currencies and the weaker yen policy, suggesting that the weaker yen would be prolonged.

The Reuters reported on 13th that an official of the Japanese Treasury said that "the weaker yen is the only measure to support for the structural reform of the Japanese economy, and the yen-to-dollar exchange rate must increase to 130 yen." As of 4 o`clock pm yesterday, the yen fell as low as to 127.45 to the U.S. dollar, closing at 130 yen.

On the other hand, the won had increased to 1,310 won to dollar in the beginning of October, but dropped to 1,274 won to dollar on Dec. 13th. The stronger won derived from the increase of foreigner`s stock investment since the Standard & Poor`s raised the Korea`s credit rank from BBB0 to BBB+ on Nov. 13th.

An official of the Ministry of Finance and Economy expressed his concern, saying that "if the yen rises to 130 yen to dollar, and the won keeps the current level against the dollar, the won-to-yen exchange rate may drop below 1,000 won to 100 yen." As of 13th, the won-to-yen exchange rate recorded 1011.86 won, declined by 100 won from 1111.39 won on Sep. 26th.

▼ Possibility for Worsening the Exporting Competitiveness

According to the survey of the Korea International Trade Association (KITA) on 200 exporting companies, the Korean products can maintain the competitive edge against the Japanese products at the exchange rate of 1073 won to 100 yen.

Shin Seung-Gwan, a senior researcher of the Trade Research Department in KITA, said, "If the weaker yen continues, the Japanese companies producing car, electronic goods, and PC, which are the major competitors of the Korean companies in the export market, will try to lower the price of exporting goods." He continued that, "If the won-to-yen rate falls below 1000 won, the Korean export companies will face serious damage."

Therefore, some experts pointed out that the foreign currency authorities have neglected to control the foreign currency exchange rate. Jeong Yong-Sik, a senior researcher of the Samsung Economic Research Institute, said, "The government should prepare a measure to relieve the shock from the radical fluctuation of exchange rates, including `intervention through announcement` even if it would be hard the government alone to change the trend of market. The government also needs to establish such measures as the purchase of dollars through the government-run banks and the raise of dollars by the Bank of Korea`s issuing of the overseas-bonds presented with the won."

Park Joong-Hyun sanjuck@donga.com