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The Impact of JPY Depreciation on Korean Industries

Author Hyon-Soo Shin, Won-Bok Lee, Sang-Ho Lee, Doo-Yong Kang, Jae-Duck Kim Date 2013.03.19 Issue No 553
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The Japanese currency, yen (JPY), has been steadily depreciating in value since Prime Minister Abe took the helm of the Japanese Government. In contrast, the Korean won (KRW) has continued to appreciate in value, leading to a record-breaking drop in the KRW-JPY exchange rate in early June last year.

 

While the growth in the JPY-USD exchange rate is expected to slow down in the future, the KRW-JPY exchange rate will continue to drop further due to the downward trend in the KRW-USD exchange rate.

 

○ A 1-percent decline in the KRW-JPY exchange rate is estimated to decrease the overall volume of Korea’s exports by 0.18 percent.

 

- Due to the change in the export structure and the success yielded by the diversification of exports, the impact of the JPY depreciation on Korea’s exports has somewhat weakened.

 

- Nevertheless, the JPY depreciation coupled with the continuing worldwide recession may still pose a significant setback in Korean business community.

 

The JPY depreciation is most likely to harm the automobile, steel, electronics, and textile industries as well as small- and medium-sized businesses vulnerable to fluctuations in exchange rates.

 

The deterioration of Korean businesses’ payability is also likely to be most noticeable in the automobile, textile, electronics, and machinery industries which are highly dependent on exports for income while importing relatively little intermediate materials.

 

If this situation persists, Korean businesses need to develop strategies to advance their export structures and enhance the competitiveness of the goods and services exported to Japan.

 

- The Korean Government, for its part, needs to prevent sudden fluctuations in the exchange rate and come up with policy measures to protect Korean businesses from the repercussions of the continuing JPY depreciation.