Report sees no relief from persistent decline of yen

The Korean economy has gotten no relief from one of its biggest challenges of recent years: the continuous weakening of the Japanese currency.

The Japanese stock market yesterday closed at its highest level in six years on the back of growing expectations of larger dividend payouts, but mostly because of the decreasing value of the yen.

The Topix climbed 1.5 percent to its highest close since June 2008. The yen fell 0.1 percent to end the day at 109.19 per dollar, weakening for the third consecutive trading day.

Thanks to the depreciation of the yen, the stocks of Japanese companies with large export businesses, from automakers to refiners, saw their shares jump.

A report by the Korea Economic Research Institute released yesterday raised concerns over how the ongoing depreciation of the yen and the stronger dollar may influence the Korean economy.

Byun Yang-gyu, head of the institute’s macroeconomic policy research department, emphasized the yen’s depreciation since the second half of 2012.

While most investment banks project the yen will stabilize next year in the neighborhood of 109.8 against the U.S. greenback, Byun said the situation could worsen to the point where it would depreciate an additional 5.4 percent to 116. That would trim Korea’s economic growth by 0.27 percentage point.

The Bank of Korea’s latest projection in July was for the Korean economy to grow 4 percent next year, down from the BOK’s estimate of 4.2 percent in April. The central bank will announce its revised outlook next month.

The KERI researcher said the widening difference in treasury yield between U.S. and Japanese bonds caused by the stronger economic recovery in the United States, as well as the push for a loose monetary policy by the European Central Bank, will likely bolster the dollar and further weaken the yen.

He also noted that the Japanese government will continue to push for an even weaker yen after Prime Minister Shinzo Abe’s recent consumption tax hike slowed the economic recovery.

Byun said weaker exports resulting from the yen’s depreciation will have the biggest impact, reducing growth by 1.14 percentage points. Imports will see only a slight decrease of 0.15 percentage point.

The institute projected that due to the declining rate of growth and resulting cutbacks in hiring, private spending growth will likely be 0.11 percentage point less, while corporate investment, including in production facilities, will drop by 0.8 percentage point.

BY LEE HO-JEONG [ojlee82@joongang.co.kr]