Caught in the yen current
The big threat to South Korea's economy is not from the North but from the ripples caused by the falling currency across the Sea of Japan
South Korean Finance Minister Hyun Oh-seok said Japan's weakening yen was hurting his country's economy more than North Korean threats, an example of a "spillover" that merits discussion.
"But if this causes problems, and then the problems cause new responses from partnering nations, for example a currency war, the world economy will have a hard time."
In his first month in the job, Hyun has been contending with a slide in Japan's currency that is undermining South Korean exports, and tensions with North Korea that threaten to dampen confidence. The won has gained more than 21 per cent against the yen in the past six months on Japanese Prime Minister Shinzo Abe's campaign for expanded monetary easing.
"Compared to the North Korea risk, a sliding yen is having a considerable impact on the real economy of South Korea," Hyun said. "Depreciation of the yen has caused the spillover-effect phenomenon so this is worth discussing."
At their last gathering in February, G20 finance chiefs signalled that Japan could stimulate its stagnant economy as long as policymakers refrained from publicly advocating lower levels for the yen. The G20 nations will affirm a commitment to avoid weakening their currencies to gain a trade advantage, according to a draft statement prepared for the meeting this week in Washington, Bloomberg reported. Bank of Japan governor Haruhiko Kuroda said on Thursday in Washington that other nations understood that the BOJ's easing was aimed at spurring inflation rather than weakening the yen.
"South Korea's exports may decline in the second half of this year unless the US economy rebounds significantly, which is unclear for now," said Lee Sang-jae, a Seoul-based economist at Hyundai Securities. "South Korea wants the G20 to help curb or at least slow the yen's declines. However, Japan is trying its last resort and big powers such as the US and Germany see little reason to put a brake on Japan."