BOJ stokes fears of export war

After the Bank of Japan unexpectedly joined the U.S. and Europe in pouring extra liquidity into the market, concern has been stoked about the potentially negative impact of the move on the Korean economy.

Speculation has also arisen as to whether the countries are heading for another currency war in hope of gaining a competitive edge through devaluation, which could have undesirable effects on Korea’s heavily export-dependent economy.

A devalued yen would likely weaken Korea’s price competitiveness in the export market as there is a significant degree of overlap in terms of the Asian neighbors’ major export items, including automobiles, consumer electronics and computer chips.

After the Japanese central bank’s announcement Wednesday, the stock value of Hyundai Motor and Kia Motors retreated. Korea’s No.1 automaker saw its share price dip 2.21 percent, while its affiliate Kia dropped by more than 3 percent.

Both slipped by another 0.41 percent each yesterday, with Hyundai closing at 242,000 won ($215) and Kia 73,000 won.

The won further appreciated against the Japanese yen yesterday, adding more than 30 won from the previous trade to close at 1,438.4 won. On Wednesday, after the news came from Japan, the won appreciated 14.12 won to close at 1,408.11 won.

Market experts say the impact of the BOJ’s move is likely to be short-lived, however, as the market sees Japan’s monetary easing as being considerably lighter than similar moves by the U.S. Federal Reserve and the European Central Bank, indicating that the yen may appreciate soon.

“There is scant chance of the yen dropping as rapidly as it did against the won in February [again],” said Oh Seung-hoon, an analyst at Daishin Securities. “The Japanese central bank’s move to purchasing assets worth 10 trillion yen [$128 billion] on Feb. 14 maximized its impact as it happened prior to the quantitative easing by the Fed, whereas the latest move was executed to counter the Fed’s recent QE3.”

Mirae Asset Securities predicts the yen will stay at around 1,400 won per 100 yen for a while.

The BOJ on Wednesday laid out a fresh monetary stimulus package by vowing to expand its asset-purchasing program to a total of 80 trillion yen by buying additional government bonds worth 10 trillion yen.

Since October 2010, the BOJ has expanded its asset-purchasing program on six occasions, but this has had a limited effect in keeping its currency value down.

Japan’s economy grew 0.3 percent on-quarter in Q2 and 1.4 percent on-year. Yet its growth momentum decelerated significantly from the 5.5 percent on-year expansion recorded in the first three months of the year.

On a brighter note, the local bourse is expected to benefit from an influx of foreign investment due to the abundant supply of liquidity as investors warm to riskier propositions drawn by the lure of high returns. Foreign investors continued their net purchases of local stocks yesterday.

By Lee Ho-jeong [ojlee82@joongang.co.kr]