Full impact of yen’s slide still to come, official says

Weakness in the yen may have a bigger effect on Korea’s economy this quarter and is already trimming the nation’s trade surplus, a senior finance ministry official said.

“I expect second-quarter economic indicators to show more effect from the weakening yen,” Choi Hee-nam, 52, a director general at the ministry, said Tuesday. “The surplus from exports is narrowing.”

The yen’s 20 percent decline against the dollar over the past six months threatens to undermine Korean exporters by aiding their Japanese rivals.

Korea’s currency policy under President Park Geun-hye is consistent with that of predecessor Lee Myung-bak in that the government carries out “smoothing operations” in times of sharp volatility, Choi said.

Businesses most vulnerable to the yen’s decline are very small companies exporting seaweed, oysters and other seafood that are paid in Japanese currency rather than dollars, the official said.

More “support measures” for Korean industries to counter the effects of yen depreciation are possible, Choi said. On May 1, the government said it would boost special loan programs, including for small to medium exporters, by 11.1 trillion won ($10 billion).

The won slipped about 2.5 percent against the dollar in the past six months. It is up more than 20 percent against the yen.

Finance Minister Hyun Oh-seok said in Washington last month that weakness in the Japanese currency was having a bigger effect on South Korea than threats from neighboring North Korea.

Choi reiterated South Korea’s concern that a Group of 20 nations statement in Washington last month had been interpreted as an unqualified endorsement of Japanese policies. He said “there was a lot of debate, and a lot of countries opposing Japan’s policies.”

Separately, Choi said the government is waiting for the right time to sell dollar-denominated bonds, with North Korean risks among the variables.

Bloomberg