S. Korean Cries for G-20 Focus on Yen Belied by Pick-Up: Economy

South Korea’s forecasts for faster growth and evidence of strength in sales from shipbuilders to carmakers are undercutting the nation’s warnings that neighboring Japan’s weakening yen poses a threat to its economy.

Finance Minister Hyun Oh Seok reiterated his country’s call this week that there should be international discussion on Japan’s policies, ahead of his departure to attend a meeting of Group of 20 finance chiefs in Moscow. The Bank of Korea’s own forecasts indicate little sign of danger from the yen’s drop, as it sees 4 percent growth in 2014, from 2.8 percent in 2013.

Limited side-effects on Japan’s trading partners so far from unprecedented monetary stimulus are helping Prime Minister Shinzo Abe to reflate the world’s third-biggest economy while keeping international criticism in check. Even after a 29 percent rise against the yen over the past year, South Korea’s won remains 33 percent weaker against Japan’s currency than when the global financial crisis was taking shape in mid-2007.

South Korea’s “worst fears have failed to materialize,” said Lee Sang Jae, a Seoul-based economist at Hyundai Securities Co. “The case is weakening for South Korea to complain about Japan, especially when the world needs a Japanese recovery to secure another growth engine amid slowing in China and emerging-market economies.”

Yen ‘Worries’

Hyundai Heavy Industries Co., the world’s biggest shipbuilder, said on July 16 its orders jumped 69 percent to $14.6 billion in the first half of 2013 from a year earlier after falling 23 percent last year. Carmakers led by Hyundai Motor Co. reported a 7.4 percent rise in overseas shipments by volume in the first six months of this year from a year earlier after an 8 percent increase in 2012.

“Worries were big when the yen began to fall sharply but our exporters seem to be managing pretty well,” Jo Yung Tae, director at the trade ministry’s export and import division, said in an interview on July 17. “Some industries like machinery and steel are still vulnerable to a weak yen but products from smart phones to TVs are now the world leaders, equipped with technology and brand power. Moreover, our export markets are highly diversified.”

The trade ministry is sticking with a January forecast for a 4.1 percent increase in exports this year, given planned ship deliveries and government support for exporters, Jo said.

Exports gained 0.6 percent in the first half of 2013 after falling 1.3 percent in 2012, according to the customs service. Exports to Japan fell 11.5 percent over the six months and those to the European Union slipped 3.7 percent, while shipments to the U.S. rose 2 percent and those to China gained 9.8 percent.

‘Blame’ Game

Three months ago, in an interview in Washington ahead of a G-20 meeting, Hyun told Bloomberg News that the slide in the yen driven by so-called Abenomics presented a bigger risk to South Korea’s economy than North Korea.

Tensions persisted, with Koichi Hamada, an economic adviser to Abe, saying in May that South Korean officials “shouldn’t blame the Japanese central bank, they should demand the Korean central bank have a proper monetary policy.”

At a briefing this week in Sejong, south of Seoul, Hyun was more focused on concerns related to the prospect of the U.S. Federal Reserve unwinding stimulus measures than on Japanese policies. He refrained from commenting specifically on the yen, while saying that Japan should concentrate on restructuring its economy. An excessive focus on foreign exchange rates may escalate into a currency war, Hyun told reporters.

Nishimura’s Tour

Ahead of this week’s G-20 meeting, Japanese Deputy Economic Minister Yasutoshi Nishimura has visited Singapore and Hong Kong, re-stating the case for Abenomics and explaining Japan’s position that yen weakness is not a target of the government’s policies.

In an interview with Bloomberg Television in Singapore today, Nishimura said that his nation’s policies were well-understood by members of the G-20.

The won’s real effective exchange rate, a measure that captures the competitiveness of the currency by taking the weighted average of South Korea’s bilateral exchange rates and adjusting for inflation rates, is about 8 percent below its average over the past 10 years, according to Bank of International Settlements data compiled by Bloomberg.

Technology, Brands

South Korean companies’ technology, product quality and brands, particularly in the electronics sector which accounts for 30 percent of the country’s exports, give them staying power in overseas markets, said Ma Tieying, an economist at DBS Group Holdings Ltd. in Singapore.

“We are still comfortable about the relative performance of Korean exports, despite a challenging global environment and the threat of yen weakness,” said Ma.

In April, Bank of Japan Governor Haruhiko Kuroda won endorsement by G-20 nations of his stepped-up stimulus push, saying it emboldened him to press ahead with his campaign to defeat 15 years of Japanese deflation.

While the South Korean economy as a whole is weathering the yen’s fall, some companies are finding it tougher going. Janus Korea Co., an Incheon-based handset and mobile device case supplier for Japanese companies including Sharp Corp., sees the yen’s fall as the biggest threat in its eight-year history.

“We could have achieved record-high revenue up to 14 billion won this year but the yen is nose-diving so fast that we’re now expecting about 10 billion won at most,” Chief Executive Officer Son Jung Mi, 53, said in an interview on June 25. “The currency risk is too big for a small business like us and we can’t help but bleeding with squeezing profit.”

Son said he is relying on a government foreign-exchange insurance program while trying to cut production costs by tapping cheaper labor in other Asian countries and honing the company’s technology.

Export Rivals

About 57 percent of South Korea’s exports compete with products from Japan as of 2012, according to LG Economic Research Institute. A 10 percent rise in the won against the yen tends to trim South Korea’s export growth by 1.4 percentage points, said Lee Ji Seon, a senior researcher at LG.

State-backed financial institutions have increased low-cost funding, credit guarantees and insurance against movements in foreign-exchange rates to exporters to help them cope with the won’s volatility.

The Bank of Korea’s growth projections, boosted last week, reflect expectations its quarter-point interest rate cut in May and a 17.3-trillion-won ($15.4 billion) extra budget will bolster the economy, Governor Kim Choong Soo said July 11.

In economies around the world today, the U.K. is due to release retail-sales numbers, while data on initial jobless claims are due in the U.S. The Conference Board may report that a U.S. index of leading economic indicators climbed in June for the third straight month, according to the Bloomberg survey median.

In South Africa, the central bank will keep interest rates unchanged, according to all 18 economists in a Bloomberg poll.

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