Abe’s push for weaker yen a cause for concern

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Abe’s push for weaker yen a cause for concern

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The result of Japan’s parliamentary election is concerning Korean companies as their price competitiveness against Japanese companies is in doubt due to the Japanese government’s plan to weaken the yen.

Japan’s Liberal Democratic Party, led by former Prime Minister Shinzo Abe, won 294 seats among the 480 available seats in Sunday’s House of Representatives election, taking control of the lower house.

Before the elections, Abe had proposed implementing measures directed at weakening the yen.

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The 58-year-old even suggested that Japan’s central bank, the Bank of Japan (BOJ), should print “unlimited yen” to tackle the strong yen situation.

Japanese economic groups are predicting the dollar-yen currency exchange rate to stay around 84-87 yen per dollar early next year, while it could be 90 yen per dollar by late next year.

The Korea International Trade Association (KITA) said yesterday, given the impressive victory in the election, that Abe should be able to introduce his policies.

This will threaten Korean companies’ price competitiveness in the near future as the won grows stronger.

KITA said one of the reasons why Korean products have done well in the world market in recent years is that they have benefited from the strong yen.

The strong yen makes Japanese goods more expensive to foreign buyers and also hurts the profits of Japan’s exporters.

But as this trend will not likely continue, the trade organization insisted that the companies and the government should prepare for the changing environment of the market.

“Companies should set up a plan to reduce the impact of currency risk along with raising competitiveness in non-price related aspects such as quality and design,” the KITA said.

‘The government should find solutions to limit the impact of Japan’s plan for our exports and investments.’

Not all industries will likely experience a negative impact from Japan’s plan to weaken the yen.

With its quantitative easing to stimulate the Japanese economy via exports, Korean companies in the steel, machine and auto parts industries will likely see some benefit as the demand for the Japanese automakers’ products will be welcomed in foreign countries, according to analysts.

However, analysts are predicting that local automakers, such as Hyundai Motor and Kia Motors, would likely face their toughest challenges from a weakened yen.

According to the report from the Korea Automobile Research Institute (KARI) on Sunday, the export similarity index of the auto manufacturing industry between Korea and Japan was 0.625 in 2010, higher than the industry average of 0.394.

The research group run by Hyundai Motor Group also said that as the won-yen currency rate falls 10 percent, the export money of local automobile manufacturers would dive 12 percent.

KARI said that its prediction came after analyzing the period between 2001 and October 2010, and used the OECD’s Composite Leading Indicator as a variable for the world economy.

If applying KARI’s speculation to last year’s Korean automobile export sales figure of $45.3 billion, Korea will lose $5.4 billion if the currency rate falls 10 percent.

The Japanese “big 3” - Toyota, Nissan and Honda - have been recently gearing up sales with aggressive marketing after last year’s tsunami disaster.

Toyota, the No. 1 auto brand in Japan, sold 8.17 million vehicles worldwide in the first 10 months of this year to reclaim the world’s top position, beating U.S.-based General Motors (7.68 million) and German automaker Volkswagen (7.5 million).

The U.S. auto market adds even more concern to the Hyundai Motor Group affiliates.

The combined market share of Hyundai and Kia was 8.3 percent in November, handing over the sixth-place spot to Nissan which accounted for 0.1 percent more of the market.

Toyota was third in the U.S. with 14.1 percent, while Honda was fifth with 10.2 percent.

Korea’s top two automakers said that they have been preparing for the volatile currency rate situation by increasing production overseas instead of upping the amount of exports from Korea.

For the first 11 months this year, Hyundai Motor sold 3.4 million vehicles overseas, but only 1.13 million vehicles were made in Korea.

By Joo Kyung-don [kjoo@joongang.co.kr]

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