News Column

Japanese Yen's Descent Could Hurt South Korea Corporate Earnings

Dec. 26, 2012

The expected deprecation of the Japanese yen stemming from the leadership change in Japan will hurt corporate earnings in South Korea amid continued ascent of the South Korean currency, a local brokerage report showed Monday.

Should the Japanese yen depreciate to 110 yen against the U.S. dollar and the South Korean won rise to 1,050 won versus the greenback, operating profits of South Korea's top 25 listed companies, which account for 44.6 percent of total market cap, will decrease by 1.6 percent, according to the report by Samsung Securities.

The Japanese yen was quoted at around 84 yen versus the greenback recently, appreciating more than 8 percent so far this year. The ascent was mainly attributable to quantitative easing by Bank of Japan (BOJ), Japan's central bank.

The Japanese yen's depreciation was expected to deepen further as Japan's premier-in-waiting Shinzo Abe has called for"unlimited" monetary easing and big spending on public works to boost its sagging economy.

After winning a landslide victory in the lower house election, Liberal Democratic Party (LDP) leader Abe prioritized the economy, which was in its fourth recession since 2000. Abe was expected to take the post of prime minister on Dec. 26.

The expected weaker yen will put additional pressures on corporate earnings in South Korea, whose currency appreciated over 7 percent to dollar so far this year. The South Korean won finished at 1,074.2 won versus the greenback on Monday, up 0.1 won from Friday's close.

The airline industry was forecast to be hit hardest, with its operating profit estimated to drop 46.6 percent if the Japanese currency should depreciate further to 110 yen versus the dollar. The weaker yen will reduce the number of Japanese tourists into Seoul and strengthen competition with low-pricing airliners in Japan, the report showed.

Under the same conditions, operating profits for local steelmakers and automakers were estimated to decline 4.4 percent and 4.2 percent each, while those for the TV and mobile phone sector were projected to fall 2.3 percent.

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Source: Copyright Xinhua News Agency - CEIS 2012

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