Recently, the Japanese yen exchange rate has been in the 800 won range, showing a rapid downward trend. Despite the austerity trend (interest rate hike) of major global countries such as the United States, the Bank of Japan (BOJ) cannot raise interest rates (continues accommodative monetary policy), so the interest rate gap with the United States can only become larger, which is reflected in the depreciation of the yen.
Since the end of 2022, the preference for safe assets has weakened somewhat, and the value of major currencies in the world has risen compared to the US dollar. The main reason for the depreciation of the yen is the unlimited quantitative easing policy of the Bank of Japan (BOJ), which is differentiated from the interest rate hikes of major countries. Despite this, the yen continues to weaken, and it is expected to remain weak due to the BOJ's intention to maintain its accommodative monetary policy and the delay in adjusting the Yield Curve Control (YCC) policy of the Japanese government.
However, despite the weak yen, the Japanese securities market is experiencing a strong rally due to the liquidity effect. This is due to the rapid inflow of foreign funds driven by the improvement of the fundamentals of the Japanese economy. Whether this trend will continue depends on whether the Japanese economy can escape the deflation that has persisted for 30 years. If this situation continues, wages may rise due to global inflation, consumer prices will increase, and expected inflation could be maintained at 2% or more.
Currently, Japan's economic growth momentum is better than Korea's. Therefore, it is difficult for the yen to maintain its current ultra-weak rate purely based on economic fundamentals. Despite this, concerns have emerged that the continued weakness of the yen may increase the price competitiveness of Japanese products, adversely affecting Korea's exports. If the yen weakens and Japanese exports increase, Korea's price competitiveness will decline, leading to reduced export contributions and a negative impact on the Korean economy. Additionally, sectors with high export competition between Japan and Korea, such as automobiles and semiconductors (materials, parts, equipment), will be sensitive to exchange rate fluctuations. The weak yen will challenge Korea's technological competitiveness, as the export competition with Japan in electrical equipment (57.0), machinery (63.4), automobiles (90.3), and semiconductors (60.7) is significant.
To address this problem, it is necessary to strengthen currency swaps with major countries and expand exchange rate fluctuation insurance to improve the ability of small and medium-sized enterprises to respond to exchange rate fluctuations. Additionally, in preparation for a prolonged economic downturn, it is important to establish various solutions based on government and export competitors, such as continuing to promote the differentiation and high-added value of products.
JYP / KRW exchange graph
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