[EDITORIALS]Dangers of a sliding yen

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[EDITORIALS]Dangers of a sliding yen

The Japanese yen has resumed its slide in the foreign exchange market. The yen started the year at 131 to the U.S. dollar, but recently fell to about 133. The won has climbed to 990 won per 100 yen, having broken the 1,000 won mark at the beginning of the year. The won stands about 6 percent higher than last year's average rate against the yen, which was 1,060 won to 100 yen. The situation certainly poses a daunting prospect for Korean companies competing with Japanese businesses.

Japan's economy has turned in the worst performance among the world's most advanced countries, and the yen's slide is an inevitable consequence. The problem is with the speed of the slide. The yen stood at 115 against the U.S. currency just after the terror attacks on the United States in September, but it declined more than 15 percent in the following three months. Japanese media reports reflect the government's view that the yen had been overvalued.

We ought to remain alert of a concerted effort by the Japanese government to weaken the yen. If it were Tokyo's intention to buoy the slumping economy by stimulating exports through a weak yen, we should be concerned. Japanese products would benefit in the short-run from a weaker yen. But import prices would climb. Other effects could be a slowdown in restructuring efforts by Japanese companies, thinking that increased revenue from exports signals the worst has passed. And if neighboring economies, most notably China, choose to cut the value of their currencies, exchange rates could become a trade issue.

The Japanese monetary authority must consider the effects on its neighbors if it hopes to give credibility to a statement by the Bank of Japan's governor, Masaru Hayami, that "there has not been a country that prospered by lowering its currency value."

Seoul for its part must take measures to prevent the yen's slide from causing wide fluctuations in the won's value, and the government must cooperate with the Chinese to ride out the situation. Businesses must push cost cuts and develop technologies that enable them to compete with the Japanese in world markets.
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