South Korean exports hurt more by torpid global economy than weak yen

[SEOUL] South Korea's exports have been hurt more by sluggish global demand than by a weak Japanese yen , the central bank said on Tuesday, though shippers face downside risks should Japanese companies begin an aggressive push to take more market share. "With the exception of cars, machinery and steel where competition is strongest between South Korean and Japanese exporters, the influence of the weak yen has been small," said the Bank of Korea in a biannual report on financial stability.

The central bank said that rather than cutting prices, Japanese companies were accumulating cash as the yen weakened against global currencies.

The yen has fallen 56.6 per cent against the won from September 2012 through to March this year, according to the Bank of Korea. The yen's plunge, driven by Japanese Prime Minister Shinzo Abe's stimulatory economic policies known as Abenomics, has raised concerns that Korea's manufacturing titans will be put at a disadvantage in global markets.

But the Bank of Korea report takes a cautious but less gloomy view on the impact of the yen's fall on local exporters.

The report, however, said that if volatility in the yen-won currency exchange rate increases, small-to-medium sized exporters' would mostly be affected because of the exchange rate impact on their profits.

The same report noted that financial soundness of households has declined somewhat, with income conditions failing to improve due to a pick up in debt amid low interest rates.

The Bank of Korea said 13.8 per cent of households who hold financial debt were most at risk as of end-March should market interest rates start rising. These households carry 32.7 per cent of all financial debt in South Korea and their average debt-to-disposable income ratio stands at 507 per cent, compared to an average 77 per cent for other households.

The central bank has cut interest rates four times since last year to a record-low 1.50 per cent in an attempt to spur a stuttering economy. The last rate cut was delivered in early June.

Household debt growth has rocketed in the past year, but the Bank of Korea has said it does not yet pose risks to financial stability as most of it is in real estate.

REUTERS