As noted earlier, the yen’s marked U-turn back down against the dollar this week has revived debate about how much a flailing, export-oriented economy such as Japan’s could benefit from a weaker currency.
While the notion that exporters stand to gain from a weaker currency has managed at some points of the last 10 days to spur the battered shares in Japanese manufacturers, such spikes will prove ephemeral. There is a bigger problem here: demand is collapsing for goods from Japan – and other Asian exporters, regardless of price fluctuations.
On the subject of weakening Asian currencies, it’s worth noting South Korea’s U-turn on the issue. On Wednesday the country’s new finance minister Yoon Jeung-hyun spoke for the first time since assuming his post two weeks ago, unexpectedly extolling the benefits of the sliding won as a filip for an export-dependent local economy.
Yoon’s line – signalling an end to Seoul’s hitherto heavy intervention to support the currency – is diametrically opposite that of his “heavily-criticised predessor”, Kang Man-soo, as Reuters noted on Wednesday, who spent billions of dollars to support the currency as it slid last last year. Despite massive intervention, the won ended the year down 25 per cent against the dollar and so far this year has tumbled another 16 per cent, making it Asia’s worst performing currency, the report added.
Yoon told a meeting of government officials on Wednesday that the won, now trading at its lowest level in a decade, could help South Korea boost both exports and overcome other troubles facing Asia’s fourth-largest economy.
“If we manage the situation well, it (a weak won) could prove to be helpful for us in overcoming the troubles,” he told the meeting.
South Korea’s economy shrank 5.6 per cent in the fourth quarter and exports are falling at a record pace, adding to evidence that the country could be in recession, noted Reuters. Meanwhile, President Lee Myung-bak, marking his first anniversary in office, has offered some 140,000bn won ($92.3bn) worth of fiscal spending and tax cuts to stimulate domestic spending and plans to draw up additional spending plans by next month. His government is also finalising plans for a 20,000bn won ($13bn) fund to recapitalise local commercial banks to help promote lending.
While Korean central bank data issued Wednesday suggested the lower won was already helping improving the balance of payments,the prospect of even more expensive imports will inevitably drag on consumption.
Strangely, however, Japan is doing its bit to counteract that effect. And that brings us to the most ironic part of the story of neighbouring Japan and Korea and their economic and currency woes. The brightest spot in the darkening outlook for Korean consumption has been the tremendous influx of Japanese shoppers – taking advantage of the quick (barely an hour and half from Tokyo to Seoul) bargain flights and the cheap prices of goods. In an on-the-ground report, a local Korean news site Ohmy News, brings us a colourful account:
Seoul has always been a favorite destination for Japanese leisure travellers hunting for a handy weekend trip but cheap Korean won is drawing Japanese visitors in droves to Seoul this winter.
The Korean won has dropped to 1,600 won per one 100 yen recently, about 50 percent cheaper than a year ago. The won has unanimously depreciated against US dollar and other major currencies in the wake of global financial crisis but the drop was particularly dramatic against the yen.
Local stores have begun to see the immediate effect. Lotte Department Store, the top shopping destination for Japanese visitors has reported a 12-fold increase in January sales among Japanese shoppers. Its main store in Myungdong alone sold goods to Japanese worth over 9.1 billion won, about 7 percent of its entire revenue. Some Japanese shoppers are reportedly making multiple trips to Seoul after realizing that air ticket cost can be easily cancelled out if they buy a couple of big ticket luxury items. A typical Louis Vuitton bag would be cheaper by 50 percent in Seoul after counting in exchange rate.
Top Seoul hotels are almost completely occupied by Japanese visitors as well. Lotte Hotel saw its Japanese occupancy rate hovering around 60 percent for the past three months and more upscale Westin Chosun Hotel also increased the ratio of Japanese guests from 20 percent in late last year to 40 percent in February. Business travelers shuttling between Seoul and Tokyo are also struggling recently to book any air ticket they can find. Flights for Incheon-Narita and Gimpo-Haneda routes, one of the busiest already in Asia are completely booked this winter due to ever increasing visitors from Japan.
Related link:
Downturn drives expat exodus from Shanghai’s Little Korea – FT
The end of the yen’s ‘safe haven’ status? – FT Alphaville