Weekly Commentary - Depreciation of JPY and Korea export sector
The nightmare of Japan turns to Korea since the end of last year. Since Japanese Prime Minister Yoshihiko Noda dissolved the country’s parliament in preparation for general elections on 16th December and investors expected Shinzo Abe will seize power in the election from the Democratic Party and speculated he will call for more aggressive easing policy by Bank of Japan, Japanese Yen depreciated by around 11 percent and the Nikkei 225 Index surged by around 23 percent (From 16th Nov 2013 to 25th Jan 2013). Korea KOPSI index lagged behind the global market indices and Japan Nikkei 225 Index in the same period. Since the mid-November, Korea KOPSI Index rose by around 4 percent, meanwhile, MSCI World Index rose by around 12 percent.
From June 2012, the exchange rate between Korea Won and Japan Yen has been appreciated by around 30 percent. The exporter stocks in Korea are under pressure relative to the one in Japan. For example, the stock of Toyota went up by 31 percent in quarter 4 2012 but Hyundi dropped by 5 percent in the same period.
It is likely to see the Korea’s export sector to go depress for a short period time, as their short-term earnings may be squeezed. However, the competitiveness of Korea’s exporters improved significantly over last decade. For example, Samsung’s Smartphone is one of the well-known brands in the world nowadays and the old brands in Japan, such as Sony and Panasonic, are not likely to compete with Samsung in the Smartphone market, at least in short-term. Moreover, global economic growth is picking up gradually and Korea exporters can be benefited from the recovery. Finally, some countries already voiced their concerns over the depreciation of Japanese Yen. That implied some Central Banks may step forward to support their export sectors soon. The Bank of Korea, of course, is one of the likely candidates to do so. Thus, the impacts of depreciating Japanese Yen may not as big as market original estimation.
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