As the Bank of Japan (BOJ) has embarked on its first interest rate hike in 17 years, it is anticipated that the strengthening of the yen due to the lifting of Japan’s negative interest rates could have a positive impact on domestic exports such as semiconductors, automobiles, and shipbuilding. However, some analysts suggest that the reduced level of competition in exports with Japan compared to previous years might limit the magnitude of the impact.
According to reports from local media such as the Nihon Keizai Shimbun on March 19, the Bank of Japan (BOJ) raised interest rates for the first time in 17 years during a two-day financial policy decision meeting that concluded on the same day. This marks the first interest rate hike by the central bank since February 2007. Since its introduction in February 2016, the BOJ has maintained a short-term policy rate of -0.1 percent through its negative interest rate policy, wherein banks are charged a fee for depositing money. However, the BOJ has decided to increase the short-term interest rate by 0.1 percentage points, now setting a range of 0 percent to 0.1 percent for short-term rates as of today.
As Japan escapes from its negative interest rate policy after 8 years, analysis suggests that Korean companies competing with Japan in the global market could see a recovery in exports due to the potential strengthening of the yen. In particular, industries such as semiconductors, automobiles, and shipbuilding, which compete directly with Japan, are expected to benefit. Yang Hae-jeong, an analyst at DS Investment & Securities, stated, “The change in the value of the yen could present opportunities in the Korean market, considering the previously disadvantaged position of Korean exporters due to the weak yen. Sectors such as semiconductors, automobiles, and shipbuilding, which have been relatively suppressed compared to the Japanese market, may see movement first.”
However, it is forecast that the impact of fluctuations in the value of the yen on domestic exports may not be significant as the competition between Korea and Japan in exports has decreased compared to the past. Lee Hong-jik, the head of macroeconomic outlook division at the BOK’s research department, said, “Fundamentally, the influence of exchange rates on exports has decreased compared to the past, and recently, non-price competitiveness factors such as global demand and quality competitiveness have become more significant,” adding, “Even if the yen strengthens, it may not only affect the Korean won but also other currencies similarly, thereby limiting its impact on domestic exports.”
There is also potential for improvement in the deficit of the travel balance. According to the BOK, the deficit of the domestic travel balance last year amounted to US$12.53 billion (approximately 16.69 trillion won), marking the highest level since 2018, before the COVID-19 pandemic, when it was US$16.57 billion. This is because the number of Korean travelers to Japan reached 6.96 million due to the unprecedented weak yen, but only around 2.31 million Japanese visitors came to Korea.
There are also forecasts suggesting that it could have a positive impact on the domestic stock market in the long term. With interest rate normalization leading to a stronger yen, there is a growing possibility that the upward trend in the Japanese stock market may falter, presenting an opportunity in the domestic market. According to Eugene Investment & Securities, the Korean stock market has shown stronger performance compared to Japan since January last year amid the phase of “weakening won and strengthening yen.”
The problem lies in how quickly the value of the yen appreciates. If the yen weakness persists unexpectedly, the immediate impact on the domestic stock market is expected to be limited. In fact, following the announcement of the BOJ’s interest rate hike decision on the same day, the yen-dollar exchange rate rose to 149.84 yen by 1:04 p.m.