Yen’s Boon To Japan Needn’t Be South Korea’s Bane

nvestors in South Korea have been voting with their feet over the yen’s recent moves, even as international policy makers calibrate their response to the Japanese currency depreciation as a result of Tokyo’s reflationary efforts.

With the yen-won currency pair down nearly one-fifth from levels seen a year ago, stock investors clearly seem worried that a weaker yen, while beneficial to Japan, may hurt its neighbor to the west.

Japan’s Nikkei Stock Average JP:NIK -1.04%, with gains of more than 8% in the year to date, is among Asia’s best performers during this period, while Korea’s Kospi KR:SEU +1.54%, down about 1.3%, is one of the few regional benchmarks in the red.

In the 20 trading days prior to Wednesday (when both markets were open), Japanese and South Korean stocks ended on different sides of the previous day’s finish line in 11 sessions, or more than half the time. The two benchmarks were also diverging markedly Wednesday, when the Nikkei Average slid more than 1% in afternoon trade, versus the Kospi’s more than 1.3% advance.

“Price competitiveness has long been Korea’s advantage over Japan, but Japanese companies could gain market share as the yen heads down,” said Moody’s Analytics economist Matthew Circosta.

“The yen’s fall is a big headwind for Korea, given that country’s competition with Japan in the production and export of similar products, such as electronics, autos, chemicals and machinery. Both economies also count China and [the rest of] Asia as their biggest customers,” he said.

But looking at the big picture, it isn’t all negative for Korea, Circosta said.

“A falling yen and rising won, which also reflect improvements in global risk appetites, signal a strengthening world economy. That, together with better growth prospects in Japan, could lead to stronger overall demand for Korean goods,” he said.

Marketwatch