By Choi Sung-jin
The yen's value is soaring amid the global financial turmoil caused by Britain's decision to leave the European Union, as investors turn to safe assets.
The Japanese currency, which had remained strong in the wake of the 2008 global financial crisis, turned downward with the inauguration of the Shinzo Abe administration and has remained relatively weak. Immediately after the Brexit vote, however, it went from 105 yen to 100 yen against the U.S. dollar.
For Korean exporters, the yen's strength is good news because it pushes up the price of Japanese products competing with Korean goods in international markets, weakening the former's price competitiveness.
The overall impact of Brexit on Korea's industry will be more mixed, though, experts said Monday.
One of the biggest beneficiaries from the Brexit-caused strength of the yen will be the auto industry. According to a report released by the Korea Institute of Industrial Economics and Trade last year, the export similarity index of Korea and Japan -- which measures the similarity of the two countries' export structure -- steadily rose from 45 in 2007 to 48.3 in 2014. The auto industry's export similarity index was highest of all, with 69.
It was Japan's transportation equipment industry -- including its carmakers -- that was hit relatively hard during the era of the strong yen, which continued for years after the global financial crisis, according to a report by the LG Economic Research Institute. Between 2008 and 2011, Japanese transportation equipment makers suffered the sharpest profitability decline of 6.4 percent compared with their global competitors, followed by chemical (-4.3 percent) and electric-electronic industries (-2.6 percent).
"There have recently been some downsides in competing with Japanese cars in international markets because of the yen's prolonged weakness," said an official at Hyundai Motor Group. "If the yen remains strong, price competitiveness of our products will go up." The yen's strength will also be good news for domestic auto parts makers for different reasons, because many gave up their supply plans to Japanese carmakers because of the yen's weakness, he said.
Most other industries are more concerned about declining demand, however, as Brexit may postpone the recovery of the already sluggish global economy.
"Shipbuilding exports to Europe are expected to fall considerably, affected by the economic slowdown on the continent because of Brexit," said Shim Hye-jeong, a researcher at the Institute of International Trade. "Some industries, including shipbuilding, are affected more by demand than price competitiveness.
Steelmakers do not regard the yen's strength as so favorable a factor either because their profitability is influenced more by the won-dollar exchange rate than won-yen parity rate. "We make dollar-based contracts of raw material purchases and the value of the dollar also rose," an industry executive said.
For Korean industries to enjoy export growth because of the yen's rise, it is important the global economy does not fall deeper into a slump, experts said.
"Some industries directly competing with Japanese products in overseas markets can benefit from the yen's rise," said Ryu Seung-min, another researcher at the Institute of International Trade. "If the global economy retreats to another setback, however, such benefits will be limited."
Shin Min-young, a fellow at the LG Economic Research Institute, said the Japanese currency's influence on domestic exporters has dwindled. "It remains to be seen whether and how much influence the yen's rise will exert on Korea's exports at a time of increased uncertainty in the global economy caused by Brexit," Shin said.
The yen's value is soaring amid the global financial turmoil caused by Britain's decision to leave the European Union, as investors turn to safe assets.
The Japanese currency, which had remained strong in the wake of the 2008 global financial crisis, turned downward with the inauguration of the Shinzo Abe administration and has remained relatively weak. Immediately after the Brexit vote, however, it went from 105 yen to 100 yen against the U.S. dollar.
For Korean exporters, the yen's strength is good news because it pushes up the price of Japanese products competing with Korean goods in international markets, weakening the former's price competitiveness.
The overall impact of Brexit on Korea's industry will be more mixed, though, experts said Monday.
One of the biggest beneficiaries from the Brexit-caused strength of the yen will be the auto industry. According to a report released by the Korea Institute of Industrial Economics and Trade last year, the export similarity index of Korea and Japan -- which measures the similarity of the two countries' export structure -- steadily rose from 45 in 2007 to 48.3 in 2014. The auto industry's export similarity index was highest of all, with 69.
It was Japan's transportation equipment industry -- including its carmakers -- that was hit relatively hard during the era of the strong yen, which continued for years after the global financial crisis, according to a report by the LG Economic Research Institute. Between 2008 and 2011, Japanese transportation equipment makers suffered the sharpest profitability decline of 6.4 percent compared with their global competitors, followed by chemical (-4.3 percent) and electric-electronic industries (-2.6 percent).
Reflecting the expectations about enhanced export competitiveness of Korean vehicles, auto-related shares, including Hyundai Motor and Kia Motors, rose simultaneously at the Seoul bourse Monday.
"There have recently been some downsides in competing with Japanese cars in international markets because of the yen's prolonged weakness," said an official at Hyundai Motor Group. "If the yen remains strong, price competitiveness of our products will go up." The yen's strength will also be good news for domestic auto parts makers for different reasons, because many gave up their supply plans to Japanese carmakers because of the yen's weakness, he said.
Most other industries are more concerned about declining demand, however, as Brexit may postpone the recovery of the already sluggish global economy.
"Shipbuilding exports to Europe are expected to fall considerably, affected by the economic slowdown on the continent because of Brexit," said Shim Hye-jeong, a researcher at the Institute of International Trade. "Some industries, including shipbuilding, are affected more by demand than price competitiveness.
Steelmakers do not regard the yen's strength as so favorable a factor either because their profitability is influenced more by the won-dollar exchange rate than won-yen parity rate. "We make dollar-based contracts of raw material purchases and the value of the dollar also rose," an industry executive said.
For Korean industries to enjoy export growth because of the yen's rise, it is important the global economy does not fall deeper into a slump, experts said.
"Some industries directly competing with Japanese products in overseas markets can benefit from the yen's rise," said Ryu Seung-min, another researcher at the Institute of International Trade. "If the global economy retreats to another setback, however, such benefits will be limited."
Shin Min-young, a fellow at the LG Economic Research Institute, said the Japanese currency's influence on domestic exporters has dwindled. "It remains to be seen whether and how much influence the yen's rise will exert on Korea's exports at a time of increased uncertainty in the global economy caused by Brexit," Shin said.
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