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SEOUL, Dec 14: South Korea’s top foreign exchange official said on Friday Japan’s policies favouring a weak yen were not desirable and Seoul was ready to take action to moderate the impact on the won.
But Kim Yong-duk, deputy minister of Seoul’s Finance Ministry’s International Affairs division, told Reuters the yen’s depreciation was unlikely to deepen further given market conditions.
“Weak currency policies are not desirable when the entire global economy is depressed,” said Kim. “Korea is closely watching the yen and ready to take action if necessary.”
Deputy minister Kim said the government had many policy measures to take against the yen’s slide. He did not elaborate.
Kim said a weak yen was unlikely to resolve Japan’s economic problems because the economy’s dependence on exports was relatively low.
“Rather, (economic) restructuring and measures aimed at boosting domestic demand would be a right path,” the senior official said.
With Japan in recession, a government deficit barring fiscal stimulus and with zero interest rates, Japanese policy makers were likely to encourage a weaker yen, analysts said.
FOREX RESERVES: Deputy minister Kim also said Korea’s foreign exchange reserves of $102 billion were not excessive given the experiences of the 1997 foreign exchange crisis in Asia, brushing off criticism the government was not utilizing its assets properly.
“I think it is OK if we have more of foreign exchange reserves because that is helpful for the country’s financial stability,” Kim said. “In addition, it is wrong to say the reserves are not properly used because they generate about $4 to $5 billion of interest income a year.”
As for the outlook for the dollar/won exchange rate, Kim said it was premature to predict the won’s upside as there would be so many conflicting factors.
Analysts said the won could surge to 1,200 won per dollar in 2002 as the expectations of an early economic recovery would attract foreign equity investment.
Korea’s economy was forecast to grow up to five percent in 2002 . It is forecast to grow 2.8 percent in 2001.
“It is not quite like that. For example, the current account surplus could fall sharply in 2002,” said Kim. “Earlier in 2000 many forecast the dollar/ won rate would finish off the year at around 1,200 level. But it’s year-end level was 1,264.5.”
On Thursday, Finance Minister Jin Nyum expressed worries about the yen’s slide because the currency’s relative weakness against the won hurts the competitiveness of Korea’s vital exporters.
Economists said the weak yen would hit sectors key to the Korean economy.
Korea’s automakers, shipbuilders and electronics firms, which generate the major portion of the country’s trade surplus, have until recently benefited from the won’s weakness against the dollar following the 1997 Asian economic crisis.
But analysts said state-run corporates could be urged to hedge against their dollar-denominated debts and banks would be advised to build up more provisions against their foreign exposure.—Reuters
