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Double blow handicaps Japan manufacturers
By Robin Harding and Lindsay Whipp in Tokyo and Song Jung-a in Seoul

Published: October 30 2008 01:46 | Last updated: October 30 2008 01:46

Japanese exporters are suffering a double blow to earnings, handicapped by the rise in the yen while their South Korean rivals benefit from the collapse in the won.

“This is going to be one of the key surprises for 2009, as [Korean and Taiwanese] high-end consumer goods exporters now have this terrific competitive advantage against Japan,” said Glenn Maguire, chief Asia economist at Société Générale in Hong Kong.

EDITOR’S CHOICE
Editorial Comment: Japan needs more than gestures - Nov-02Bank of Japan prunes rates to 0.3% - Oct-31Lex: Asian rate cuts - Oct-31Japan edges closer to zero rates - Oct-31Full coverage: Global financial crisis - Oct-22Slowing output raises hopes of BoJ rate cut - Oct-30Even after Wednesday’s fall in the yen, the Korean won has lost 52.5 per cent of its value against the dollar so far this year, and 74.5 per cent of its value against the Japanese currency.

The won’s decline, even as the yen has soared as high as ¥93 to the dollar (£0.63, $0.95) and ¥118 to the euro, is likely to increase demands from Japanese industry for official intervention in currency markets to bring down the yen.

The impact on different Japanese companies depends on how much manufacturing they have moved overseas and how directly they compete with South Korean rivals.

Consumer electronics is hurting already because retailers can switch their orders within a few months and, as Mr Maguire points out, South Korean makers have improved their products “so no one views an LG or Samsung as inferior to a Sony or Hitachi” any longer.

“Samsung is increasing sales of flat-panel televisions because of the strength of the won,” said Nobuyuki Oneda, Sony’s finance director, last week, as the company slashed its operating profit forecast, largely because of the strength of the yen.

Japanese automakers are relatively insulated from direct currency competition with South Korean rivals such as Hyundai, however, because they have built plants in key overseas markets such as the US, where labour and other costs can be paid in the same dollars they earn through local sales.

Even so, producers such as Toyota, Honda and Nissan still make hundreds of thousands of vehicles for export at their Japanese factories, and the profits they earn abroad must be translated into yen on their quarterly earnings statements.

But while the won’s weakness looks like a threat when viewed from Japan, South Korea’s manufacturers say they have other things on their minds. Both Samsung and LG say they are more concerned about falling global demand for electronics, while the benefit from the won is limited.

Additional reporting by Jonathan Soble