BOJ’s hawkish pivot unlikely to impact Korea
The Bank of Japan’s (BOJ) hawkish pivot can potentially boost nearterm growth for Korea’s semiconductor, automobile and shipbuilding industries as they compete with their Japanese counterparts, experts said Wednesday.
However, the impact of the mild strengthening of the Japanese yen — a result of the monetary policy — may not be significant enough to disrupt the status quo of the global market for these two countries. This is because they are no longer in direct competition on the international stage, where product quality and demand increasingly hold greater sway over price advantages.
At play to a greater extent is the global trade trend of embracing U.S. dollar-settled transactions, which is why the U.S. Fed policy is a far more critical market condition development.
Some suggest that Korea’s equity market stands to benefit, buoyed by the subdued growth of the Japanese stock market due to the appreciating yen. Foreign investors are more likely to opt for stock investment in Korea with its weaker currency compared to the strengthening yen.
But overall, yen-driven factors are not nearly as consequential as the movements of the U.S. dollar, which are closely tied to the Fed policy for the Korean financial market.
A six-year-high deficit in travel accounts of $12.25 billion (16 trillion won) last year could see a breakthrough. Over 6.96 million Koreans visited Japan last year, amid a record-low yen, whereas only 2.31 million Japanese tourists came to Korea.
The BOJ raised the key rate to a range of zero to 0.1 percent from minus 0.1 percent on Tuesday, marking the first rate increase in 17 years and ending an eight-year-long negative rate policy.
“Korea’s major export growth drivers can ease into more favorable market conditions,” Yang Hyejeong, a researcher at DS Investment & Securities, said.
“Key manufacturers can have a greater footing in the global market, which has long been skewed in favor of their Japanese counterparts due to the sustained subdued value of the Japanese currency.”
A stronger yen does not necessarily translate to an immediate and immense boon for Korean exporters, as global currencies across the board are affected, Yang added.
“The U.S. currency holds more significance and implications than Japan’s currency, considering U.S. currency exposures to Korean firms with a global market presence.”
Huh Jae-hwan, a researcher at Eugene Investment & Securities, said that a hawkish BOJ potentially restoring the value of the chronically weak yen is bad news for the Japanese stock market, which, in turn, is great news for Korea.
“History suggests that a weak won against the yen tends to propel the vibrancy of the Korean equity market compared to Japan’s.”
Market watchers say the focus now is on the March meeting of the Federal Open Market Committee, the Fed’s rate-setting body.
The future course of the Korean stock market will be more clearly determined after the Fed policy is unveiled, Huh said.
“The implication of Japan’s monetary policy does not carry the same weight as the Fed’s. The U.S. decision will have a significant impact on the policy path of the Bank of Korea.”