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[O-Ed] The Strengthening Yen

Posted September. 30, 2009 07:08,   


The global economic crisis dealt a huge blow to Japan’s economy from late last year to early this year. Trade significantly declined and the country’s price competitiveness of goods dropped due to the strong yen. In January, the yen soared to 87 to the U.S. dollar, its highest value in 14 years. Major companies such as Toyota Motor and Sony, which had previously weathered difficulties stemming from the strong yen, posted deficits. Measures such as massive layoffs and suspension of factory operations were suggested to handle the situation.

The Japanese economy has turned a corner since the second quarter this year, when the yen-dollar rate hit 100. The yen’s value is rising again, however, reaching 88.23 yesterday partly due to the forecast of a U.S. policy of low interest rates. This has led to an overflow of “dollar carry funds” that seek profits by borrowing dollars to buy other currencies and invest in stocks. The stronger yen also caused the Group of 20 countries to urge in a joint statement the reduction of the U.S. current account deficit and Japan’s current account surplus.

Japan’s newly inaugurated government under Prime Minister Yukio Hatoyama is in trouble because of this situation. Japanese Finance Minister Hirohisa Fujii sounded an optimistic note by saying, “The recent movement of the yen is not strange.” He soon reversed his attitude, however, and hinted at intervention in the market. His comment yesterday was heavily criticized for coming amid rumors that the new administration will allow a strong yen. Japanese companies, which took action to ride out the global economic crisis a few months ago, fear the potential consequences the strong yen could bring at a time when the Japanese economy has yet to fully recover.

The Korean economy is significantly affected by the yen’s fluctuations because Korean companies directly compete with Japan’s on the world market. Korea’s economy flourishes when the yen strengthens and suffers when it weakens. Along with the weak won, the strong yen has helped Korea lift itself out of the economic crisis. Taking the advantage of the strong yen, Korean companies have prepared for the post-strong yen era by expanding exports and market share and improving corporate health. Korean companies should learn from Japan, whose companies sharpened their competitive edge even when the yen’s value skyrocketed from 235 per dollar to 120 a year after the Plaza Accord was concluded in 1985.

Editorial Writer Kwon Sun-hwal (shkwon@donga.com)