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High anxiety in S. Korea over surging won

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This photo taken on February 1, 2013, shows a woman walking past a currency exchange sign at a shopping district in Seoul. A surging won and waning yen are eroding the bottom lines of South Korea’s export powerhouses, which are feeling the pinch after years of gobbling up global market share from their Japanese rivals. AFP PHOTO/JUNG YEON-JE

SEOUL—A surging won and waning yen are eroding the bottom lines of South Korea’s export powerhouses, which are feeling the pinch after years of gobbling up global market share from their Japanese rivals.

The South Korean currency has soared 27 percent against the yen since the beginning of 2012, as anticipation of monetary easing promised by Japan’s new leader Shinzo Abe weakened the yen across the board.

And the won gained 8.6 percent against the US dollar over the same period, touching a 17-month high of 1,054.49 on January 15. In contrast, the yen slumped this week to its weakest level against the greenback.

The trend is being watched anxiously in business circles in South Korea, where overseas sales account for nearly half of the country’s export-reliant economy.

In the past decade South Korea has made sizable inroads into Japan’s export market where the two countries compete head-to-head in the electronics, auto, shipping and steel product sectors.

While only 20 percent of their top 50 export products overlapped in 2000, the figure now stands at more than 50 percent, according to data from the state-run Korea Trade-Investment Promotion Agency.

“The impact of the weak yen will have a limited impact on IT industries like smartphones where South Korea has a wide lead,” said Shin Hyon-Soo of the Korea Institute for Industrial Economics and Trade.

“But industries like auto, home appliances and steel, where slight currency swings play a pivotal role, face a pretty tough road ahead from now on,” Shin said.

Industry giants like Samsung, the world’s biggest technology firm, and the nation’s top automaker Hyundai are already feeling the squeeze, as reflected in their recent fourth quarter earnings reports.

Hyundai Motor, the world’s No. 5 automaker with its smaller affiliate Kia, saw its fourth-quarter operating profit tumble nearly 12 percent from a year ago despite an 11-percent increase in sales.

Japanese rivals like Toyota and Honda are set to “actively take advantage of the weakening yen” in competitive markets like Australia and Russia, Hyundai’s chief financial officer warned last week.

Stronger won partly to blame

Kia said the stronger won was partly to blame for a 51 percent plunge in its fourth-quarter operating profit from a year earlier.

“We are considering raising export prices of our vehicles if the strong won persists,” Kia chief financial officer Park Han-Woo said, while speaking of a “difficult year” ahead.

Even the country’s flagship conglomerate, Samsung, is not immune.

The world’s top maker of smartphones, memory chips and flat-panel TVs reported a record operating profit of 8.84 trillion won in the fourth quarter, but said the figure would have been higher by 360 billion won but for the strength of the currency.

It also warned that a stronger won could slice 3.0 trillion won off its operating profit this year—a prediction that pushed Samsung’s share price to a two-month low on the day of its stellar earnings announcement.

Although Samsung enjoys a formidable advantage in the mobile device market over long-struggling Japanese giants like Sony and Sharp, its memory chip business is more vulnerable.

“The weak yen won’t overly impact on Samsung’s phone sales for a while, but the semiconductor segment is a different story,” said an industry source in Seoul who declined to be named.

The source said it would be “problematic” if the yen remained weak against the dollar in the long term.

Samsung’s smaller rival LG reported a fourth-quarter net loss of 467.8 billion won—four times the deficit it posted the year before.

LG said its sales, which fell 2.3 percent to 13.5 trillion won, were expected to slip further.

“The first quarter is a low season for TV sales and we will also face the impact of the strong won,” LG chief financial officer Jung Do-Hyun said on Wednesday.


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Tags: Business , economy , Forex , Japan , South Korea , Trade , won

  • Health1au

    You have to understand who runs Korea. It is not the people; it is not the banks; it is not the government; it is the chaebol. If they decree that they want a lower won and the government of Korea does not comply with their wishes, then the chaebol finance a different politician during elections. EVERYONE in government knows this. 

    Chaebol families keep their money offshore and are not therefore affected by a falling won. Meanwhile, in Korea, Koreans who ARE affected by a cheap won pay the highest natural gas prices in the world, the highest rice prices on the planet (the rice-farming price-fixing cartel in Korea and their control of a rabidly nationalistic and thus blinded population of sheep is another story), and the highest retail prices. 

    One thing is certain: the chaebol hold Koreans hostage in their own country! You’d think that they could offer Korean Samsung TVs and LG washers cheaper than they sell them for in the US considering they don’t have to ship them anywhere, but those electronics are routinely as much as double what they sell for in the US if priced in US dollars. What’s more, they ban the import of so much that is produced in China for export to the US market. China makes nearly everything available for sale as regards household good in the USA, and those goods are often of a high quality because Americans have so many choices and will not buy inferior goods. However, in Korea, everything from China is of the lowest (and often dangerous) quality. As a result, the Korean-made product that compete are equally shoddy, and because that’s all there is, they are expensive too. So, you get limited choice: you can either buy Chinese junk, or Korean junk here in Korea. Trust me on this: I have had to furnish two places that I own here in Korea and aside dealing with amateur contractors and the crap they do, when it comes to household goods the range is extremely limited. There are entire streets of furniture stores but when you go there guess what? They ALL SELL THE SAME STUFF!

    Case in point: try to buy a goods trolley (a cart) here that isn’t green (and shoddy as hell). Also, try and find a fan that isn’t round (the oscillation part WILL break in six months). You simply cannot do either because of a cornered market (a hostage situation). Koreans who live in Korea all their lives have no clue and those that venture abroad are pre-brainwashed by flag-waving. They come back and instead of applying some simple mathematics and realizing how things really are for themselves in Korea, they heap scorn on the west for being so decedent  Well, you should see what your chaebol families own overseas! 

    Bottom line: if the chaebol want the currency destroyed then it shall be destroyed. The won is not a free floating currency despite the changes made after 1997 and again in 2007 with currency swaps. Moreover, the latest effort of brainwashing by the chaebol is to tell Koreans that Korea has now become a ‘developed’ country. Wrong: until your ruling cabal opens the doors to your country, you all live in THEIR camp, and you buy what THEY say you can buy at THEIR prices. That’s not “developed”; it’s “perverted”.

  • Hayek_sa_Maynila

    Look how different the attitude of South Koreans are from the reaction of Filipinos when their currency strengthens.

    While relatives of overseas Filipinos are helping us realize that a strong peso erodes their purchasing power and overall consumption, and the BPOs and exporters airing their concern over lost opportunities in their respective sectors there is still generally a bias among locals for a stronger peso.

    Koreans party when their currency weakens and protest when their currency strengthens bec imports from other countries become cheap. Cheap imports means losses in jobs/lost earnings for local producers (including farmers) that sell to the local market bec the local products become more expensive vs. imports. Same with tourism, if peso continues to appreciate, the PHL becomes a less attractive destination. 

    We should finally learn to love production and be less obsessed with consumption. Lets prioritize jobs and productivity. Productivity will help us keep prices low so we do not depend on a strong peso for lower prices of imports.

    • kangsongdaeguk

       well said.



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