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[SEOUL] South Korea's much-vaunted export machine is losing steam as the won rises against the euro and the yen, undercutting sales in global markets.
That's in sharp contrast to Japan, where currency depreciation is giving a leg up to large manufacturers that ship their wares abroad.
While domestic demand and consumer sentiment in Korea have shown signs of a pick-up following three interest-rate cuts since August, exports have dropped for four straight months this year. The weakness extends to cars and ships - two mainstays of the nation's manufacturing base.
In a worrying sign for Korean policy makers and economists, the latest data for April show exports not only contracting in value terms, but also shrinking in volume.
Shipments from Japan by volume are at the highest level in three years, with the government citing strength in automobiles, electronic parts and metal-working machinery.
Analysts at Goldman Sachs Group Inc. and Australia & New Zealand Banking Group Ltd. say this increases the chances of the Bank of Korea defying expectations with a cut in its benchmark interest rate to 1.5 per cent on May 15.
"The plummeting export figure of April has become a pressing issue facing Korea," ANZ's Raymond Yeung wrote in a report this week. "The currency strength of won relative to yen has been a lingering concern."
ANZ and Goldman still expect the central bank to hold off this month and leave rates at a record low 1.75 per cent. Another 14 respondents to a Bloomberg survey agree, while Nomura Holdings Inc. and Dai-Ichi Life Research Institute forecast a cut to 1.5 per cent.
The won rose to the highest level in more than seven years against the yen this month and in April jumped to a nine-year high versus the euro.
Korean Finance Minister Choi Kyung Hwan has noted the pain caused by the currency and said this month that the government would find ways to support overseas shipments. Bank of Korea Governor Lee Ju Yeol said last week that exports were a concern, but that the BOK would not adjust rates just for exports.
"Weak export figures in Korea support our view that the monetary easing cycle is not over," said Ronald Man, a Hong Kong-based economist for HSBC Holdings Plc. "Price competition with Japan has intensified and this weighs on economic growth in Korea's trade dependent economy."