The Japanese currency traded in the lower 132 yen zone against the U.S. dollar, its lowest level in 20 years.@ (Yonhap)
[Seoul, Korea/Newsimpact=Jinwoo Choi] In a global economic landscape defined by fierce competition, South Korea finds itself ensnared between two powerful forces: the declining Japanese yen and Chinese yuan.
As both currencies depreciate against the US dollar, South Korea's export competitiveness takes a hit, amplifying concerns for the country's economic outlook. With China and Japan ranking second and third, respectively, as formidable economic powerhouses, any fluctuation in exchange rates exerts a destructive influence on South Korea, rivaling the significance of its technological prowess.
The simultaneous depreciation of the yen and yuan proves decidedly disadvantageous for the South Korean economy. In the cutthroat export market, where prices heavily hinge on exchange rates, these currency fluctuations have repercussions as damaging as the absence of technological advancements.
Recent data reveals that the yen dropped to 144.3 against the US dollar by the end of last month, marking a 10.2% decline in the first half of this year. Although the yen briefly soared to the 130-yen range after reaching 150 yen in September 2022 due to Japan's intervention amidst interest rate differentials with the US, it has now fallen back to the mid-140 yen range.
Japan's foreign exchange authorities injected a massive $68 billion last year to curb the rapid depreciation of the yen. While the yen experienced a consistent upward trajectory afterward, it has reversed course and entered a period of depreciation since the beginning of this year.
The yen's decline stems from the fundamentally divergent policies pursued by the United States and Japan. As the US aggressively raises policy interest rates since June 2022, Japan continues on the path of quantitative easing. Consequently, a considerable amount of money has been flowing out of Japan due to the attraction of higher interest rates, leading to the yen's depreciation amidst its near-zero rates and the US benchmark rate surpassing 5.0%.
The yen's current weakness, reaching its lowest level in eight years since 2015, presents Japan with unexpected opportunities. Export-dependent companies experience a surge in performance due to enhanced price competitiveness, propelling the Japanese stock market to unprecedented levels. The Tokyo Stock Price Index (TOPIX) reveals that all 33 sectors recorded an increase, reaching the highest level since 1990, marking a span of 33 years.
Additionally, Japan's tourism sector reaps significant benefits from the yen's depreciation. Riding the wave of the weakened currency, the number of tourists visiting Japan steadily grows. The Japan National Tourism Organization (JNTO) reports that from January to May, foreign visitors to Japan reached a staggering 8,638,500, with Koreans accounting for 29.9%—more than 2,583,000 Korean tourists visited Japan.
Contrastingly, the number of Japanese visitors to Korea during the same period barely reached 666,000, representing a mere quarter of the Korean tourists visiting Japan. This discrepancy highlights the favorable tourism environment in Japan, where numerous accommodations and restaurants heavily rely on tourists for their business. Considering the substantial damage suffered by the tourism industry during the COVID-19 pandemic, the ongoing tourism boom serves as a blessing for Japan's tourism sector.
The depreciation of the Chinese yuan, on the other hand, has a slightly different background. China recently abandoned its zero-COVID policy and initiated a full-scale economic reopening on January 8, following three years of strict measures. However, the economic recovery has fallen short of expectations, leading to a sluggish movement in the yuan. While the yen depreciates due to interest rate differentials with the US, China's yuan loses value due to an economic slowdown.
Both Japan and China are inclined to tolerate exchange rate depreciation, deeming the benefits to outweigh the losses. Although the South Korean won experienced a downward trend in the first half of this year, with a 4.3% decline, it remains relatively stable compared to the significant drops of over 10% in the Japanese yen and Chinese yuan.
Given the adverse impact of yen and yuan depreciation on the South Korean economy outweighing any positive effects, it becomes evident that South Korea finds itself in an extremely disadvantageous position in this invisible currency battle.
/Jinwoo Choi is the specialist writer of Newsimpact
저작권자 ⓒ 뉴스임팩트, 무단 전재 및 재배포 금지