SEOUL/TOKYO -- South Korea's big conglomerates, Samsung, Hyundai, SK, LG and the like, no longer feel threatened by a weak Japanese yen as their businesses decouple from their once-powerful neighbor.
Indeed, the flaccid yen calls into question the world's third-largest economy's economic influence in Asia as the currency loses its status as a safe haven and major factor in financial markets.
Experts say Samsung Electronics and SK Hyinx have cultivated their own semiconductor markets globally even as Japan's influence in the sector has dwindled. Hyundai Motor and its affiliate Kia Motors no longer sell cheap alternatives to Japanese autos. Instead, they are targeting prestigious markets with their electric vehicles and premium Genesis brand.
"South Korea now has a different path from Japan. Korean products are not alternatives to Japanese products anymore, as the country's corporations have established their own monopolistic lineups," said Park Chong-hoon, head of Korea and Japan economic research at Standard Chartered Bank. "I have not heard of any companies suffering from the weak yen. So far, they are enduring very well."
Park's arguments are echoed by the companies themselves. An industry source familiar with Samsung Electronics, South Korea's largest company by market value, said the weak yen has little impact on its bottom line.
"Most of the company's transactions are made in U.S. dollars. Other currencies have small portions," said the person, who asked not to be named. "Samsung imports semiconductor manufacturing equipment from Japan, but its portion is small compared to [Samsung's] revenue. The company sells only smartphones in the country, and its market share is not so big. And Samsung's smartphone sales in Japan offset its import of equipment from the country."
LG Display, which sells organic light-emitting diode (OLED) panels for Japanese TV manufacturers like Sony and Panasonic, said the company feels neither pain nor gain from the weak yen as only small portion of its transactions are paid in the currency. Samsung Display, an affiliate of Samsung Electronics, also said the company gets paid in dollars when it sells panels to Sony.
The effect of the weak yen on South Korean automakers' competition with their Japanese counterparts in overseas markets has also diminished as they have shifted to more local production.
"The sensitivity of Hyundai and Kia's operating profits to foreign exchange has come down substantially over the past several years. We think this is a result of increased localization of Hyundai and Kia's vehicle production, as well as an improvement in Kia's profitability during this period," said Angela Hong, a Nomura analyst, in a report on April 19.
So far, jawboning from Japanese officials has not stopped the yen's slide. On April 18, Bank of Japan Gov. Haruhiko Kuroda told lawmakers that the yen's rapid depreciation is negative for the economy. Finance Minister Shunichi Suzuki said that "the current yen weakness is more harmful than beneficial," but the yen has continued to fall, hitting 129 to the dollar, a fresh 20-year low, on April 20.
Since the U.S. Federal Reserve started raising rates on March 16, the Japanese currency has declined by more than 10 yen versus the dollar.
While the yen is trading at levels last seen 20 years ago, it faces radically different economic circumstances. Back then, Japan was an export powerhouse and government officials actively sought a weaker currency. They saw exports as the only way to lift an economy still reeling from the domestic nonperforming loan crisis of the 1990s. Demand in Japan was weak then and banks had to reduce their loans to Asia.
Since then, Asia has grown, becoming a vital source of income for Japan Inc. The weaker yen and sluggish growth in Japan make it all the more important for Japanese companies to do business in Asia.
"Assuming the yen remains weak over the next year or two, Asia will see fewer Japanese investments and acquisitions. The weak yen has raised the cost of such investments," said Takahiko Watanabe, a professor of commerce at Senshu University and a former MUFG banker. "It will be difficult for Japanese companies to expand in Asia. They will focus on consolidating their positions, rather than pursue expansion."
Japanese banks have been aggressive buyers of Asian assets in recent years. In the past two years alone, MUFG agreed to invest up to $706 million in Singaporean ride-hailing company Grab, and Sumitomo Mitsui Financial Group bought 75% of Indian nonbank Fullerton Financial, 5% of Rizal Commercial Banking of the Philippines and 49% of Vietnam's FE Credit.
But despite the weak yen, some Japanese manufacturers may continue investing in Southeast Asia, Watanabe predicted, as they try to reduce their dependence on China and Russia. "Geopolitics is driving investment decisions more than economics these days," he said.
If Asia has not suffered much from the weak yen, neither has it benefited from it, said Fumiharu Mieno, director of Kyoto University's Center for Southeast Asian Studies, as Asia's economy gradually shifts from trade in goods to trade in services.
The weak yen makes travel and education in Japan less expensive. It might have sparked a huge inflow of travelers and students from the rest of Asia into Japan, but the COVID pandemic and the resulting border closures have kept Asian travelers out.
Before the pandemic, foreign travelers spent 4.8 trillion yen ($38 billion) in Japan in 2019, helping plug a gap in Japan's trade balance. Chinese accounted for 30% of tourists and 40% of foreign students in Japan that year. More Chinese sought opportunities to study in Japan in response to tighter restrictions in the U.S., Kyoto University's Mieno said.
"Demand for inbound travel to Japan is likely to remain strong," he said. "The question is when that will become unleashed again."
However, China is far from resuming travel, due to its own zero-COVID policy, meaning a weaker yen is of little use. South Korea, another neighboring country accounting for big portion of Japan's inbound tourists, has made no movement yet to promote tourism to Japan.
On the flip side, the depreciating yen could work against countries like Thailand that are desperately opening their borders to generate tourism spending. Japanese travelers have become an important source of income for these countries, with Chinese absent due to the zero-COVID policy. Russians have also stayed away due to the invasion of Ukraine.
Japan is a resource-poor country and depends on imports of energy, food and other basic materials to meet its needs. Its export-oriented manufacturing industry used to earn dollars for the country, but as Japanese companies have moved production overseas to lower labor costs and gain market access, inbound tourism and foreign students have come to fill the gap.
After the COVID-19 outbreak in 2020, however, overseas tourism plummeted, leaving Japan in a trade and services deficit for three straight years and more vulnerable to yen-selling.
Ju Won, a senior economist at Hyundai Research Institute, said the yen will depreciate further against the dollar and the South Korean won as the Bank of Japan has little room to raise its key interest rate, while the Fed and the Bank of Korea move more quickly on rate hikes.
"It's up to the Bank of Japan, but it may not be able to raise [rates] for some time due to domestic issues such as the debt problem," Ju said. "Meanwhile, we [the Bank of Korea] will follow the U.S. Fed's steps, which means the [interest rate] gap will widen further."
Additional reporting by CK Tan in Shanghai.