Weaker yen jots Korean stock market

The South Korean stock market was shaken on Thursday, the first day of this year`s trading by the soaring value of the Korean won against the dollar and the Japanese yen. The won-yen exchange rate fell below the 1,000 won mark for the first time in five years and four months, while the won-dollar rate also fell to the lowest level in two years and a half. Mounting concerns that a stronger won would undermine Korean exporters` competitiveness in overseas markets sent the share prices of major Korean exporters plunging by 4 to 5 percent.

In Seoul`s foreign exchange market Thursday, the won closed at 1,050.30 won against the greenback, down by 5.1 won from the previous trading day. The Japanese yen also weakened against the Korean currency. The won closed at 997.44 won against the 100 yen, the first close below 1,000 won since Sept. 8, 2008 (994.85 won) before the global financial crisis started.

The shock in the foreign exchange market shook the local main stock exchange, sending the main Korean Composite Stock Price Index (KOSPI) dropping 44.15 points to 1,967.19. The KOSPI was off to a bullish start but continued to slide throughout the day.

Experts say that the yen`s weakness will likely continue for a considerable length of time, as Tokyo plans to maintain its monetary easing policy while Washington has begun to reduce its quantitative easing. The South Korean government drew up its economic policy plan for 2014 based on the projection that the country`s exports will increase by 6.4 percent, up sharply from the 2.5 percent growth last year. If the yen continues to weaken, however, the government`s export targets will likely have significant hurdles.

"Foreign exchange rates are one of the biggest risk factors for the Korean economy," said Shin Min-yeong, head of economic research at the private LG Economic Research Institute. "The Korean economy can endure the won`s strength due to improved competitiveness of Korean companies. However, their profitability will likely be worsened."