Weakening yen: A wake-up call

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Weakening yen: A wake-up call

The Japanese yen, which appreciated to as high as 75 yen to the U.S. dollar in the midst of great economic uncertainty, has fallen to 83 yen to the greenback - perhaps signalling the end of the era of a super-strong yen. The Japanese currency was seen as a safe haven from tumultuous markets and a potential euro zone collapse. While the U.S. dollar remained strong, investors flocked to currencies relatively safe from economic Armageddon, bringing the yen to unnatural highs. But signs of recovery in the United States and calmer waters in Europe - coupled with Japan’s ultraloose monetary policy - may have finally changed the Japanese currency’s course. Japan’s central bank pumped in 10 trillion yen ($120 billion) to stimulate the contracting economy and counter deflation.

The weakening trend will likely continue, with the country’s sovereign credit rating downgraded and an unprecedented trade deficit posted in January. The Japanese economy still moves at a snail’s pace amid underlying structural uncertainties. The yen’s volatility directly affects the Korean economy as industrial players of the two countries are major rivals in mainstream exports of electronics, automobiles and chemicals. Korea has so far benefited from the super-strong yen; Korean exporters raked in record-high profits with lower prices while their Japanese counterparts slumped into the red.

The Japanese yen may be catching its breath after a long climb. Nobody can say for sure it will head south. But its change of course should be a wake-up call for Korean manufacturers and exporters who have been complacent with their price competitiveness in overseas markets, largely thanks to a stronger yen.

The local economy has been at the mercy of swinging won-yen exchange rates before. The economy, which enjoyed staggering growth thanks to the dollar’s slump against the Japanese currency at around 80 yen per dollar, incurred a current account deficit and a currency crisis when the rate jumped to 120 yen to the greenback.

The Korean economy has gained enough confidence and resilience against the yen. But the weakening of the Japanese currency nevertheless is bad news for Korean exporters. Exporters should rationalize appropriation of output in production bases at home and overseas to be ready for foreign exchange volatilities. They must raise levels of quality, innovate and diversify markets.

The yen’s weakening could deal another blow to our economy.
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