Weak yen raises concerns about Korea’s exports, travel balance

The sharp weakening of the Japanese currency against the South Korean won is raising concerns about Korean companies’ export competitiveness in the global market and trade balance.

The export similarity index between Korea and Japan stood at 69.2. It is the highest figure, followed by 67.9 for the U.S., 61.5 for Germany and 59.1 for China, according to an analysis by the Korea Economic Research Institute into the data provided by the Korea Institute for Industrial Economics & Trade on Wednesday.

Export similarity index is a measurement that compares the industry structure between the comparing countries based on the share of manufacturing exports. The index nears 100 if the export structure of two countries are more similar.

“Korea’s competition with Japan is quite high overall,” said Sung Tae-yoon, a professor at Yonsei University. “Since it is difficult for Korea to respond to the weak yen in terms of monetary policy, the government should consider policy combinations that relieve the tax burden on export companies.”

Kwon Nam-hoon, a professor at Konkuk University, also noted that Korea should put efforts to enhance its competitiveness in advanced industry and high value-added sectors to prepare for the continuing of the weak yen.

Tourism is also an area that Korea may lose out to Japan. The number of foreign tourists visiting Korea this year is only half of the pre-Covid-19 level despite the endemic. The number of tourists visiting Korea plunged to 970,000 in 2021 from 17.5 million in 2019 and 2.52 million in 2020, according to the Korea Culture & Tourism Institute on Wednesday,.

Last year, 3.2 million tourists came to Korea but the figure still lags that of the pre-Covid-19 level.

The number of Korean tourists traveling abroad, on the other hand, has more than double that of inbound tourists last year, reaching 6.55 million. The situation remains the same this year. The number of inbound tourists stood at 3.47 million in the first five months of this year, only 49.8 percent of the figure in the same period in 2019.

Korea has also been suffering from a chronic travel deficit since 2000, with a deficit of $3.7 billion in the first four months of the year. The travel deficit with Japan over the past 10 years averaged $1.3 billion, according to the Bank of Korea,.

“It is difficult to improve the goods balance in a short period of time as it requires product competitiveness but travel balance can be improved through government policies,” said Lee Sang-ho, an official from KERI. “The government should more actively attract foreign tourists to increase foreign currency earnings.”

Consumer demand for Japanese products, in the meantime, has grown amid a rise in overseas direct purchases.

According to the online shopping mall Gmarket, sales of sports apparel and sneakers through direct purchases from Japan soared 117 percent in the first six months of this year from the same period a year ago. Sales of digital items and home appliances increased 100 percent, luxury goods 75 percent, jewelry and watch 35 percent, and health supplements 19 percent.

“If the prices of Japanese products go down, the Korean market may be vulnerable and easily targeted by Japanese products,” said Shin Se-don, a professor at Sookmyung Women’s University.