South Korea warns Japan over damage of weak yen
TOKYO, March 22 (AFP) -
South Korea fired a shot across Japan's bows Thursday in warning of the region-wide economic damage likely to arise from a sinking yen.
A new round of competitive devaluations, following the destructive ones seen in the 1997 Asian crisis, were probable, warned Kim Yong-Duk, head of the international finance bureau in South Korea's ministry of finance and economy.
"Depreciation of the yen will have a limited positive impact for the Japanese economy, as it will be followed by depreciation of the currencies of neighbouring countries," he told a symposium in Tokyo.
"Furthermore, the US government tolerance for yen depreciation will be limited," he said at the symposium, organised by the International Monetary Fund and World Bank to address the regional impact of Japan's slump.
Finance Minister Kiichi Miyazawa Thursday denied that Japan had a secret deal with the United States to prop up the Japanese economy by tolerating a weaker yen.
"It is impossible for Japan and the US to control the dollar-yen rate," Miyazawa told reporters, following summit talks in Washington between Prime Minister Yoshiro Mori and US President George W. Bush.
"I didn't tell Mori that the dollar-yen issue should be taken up at the Japan-US summit meeting," the finance minister said.
A weak yen would benefit Japanese exporters by making their goods cheaper overseas. On the flip side, a stronger dollar would hurt US exporters.
The Japanese currency slumped to a 22-month low against the dollar on Thursday, fetching 123.76-79 in late Tokyo trade.
It is expected to weaken further after the Bank of Japan effectively restored zero interest rates in a dramatic policy U-turn this week.
But BoJ governor Masaru Hayami stopped short of encouraging a weaker yen to support growth.
"If the yen depreciates rapidly, it will be very troublesome for Asian countries as they export a lot to Japan. I don't think we should push the yen down," he said Monday.
South Korea's economy closely resembles Japan's in its mix of industries, with nearly half the two countries' total exports competing head to head.
A damaging round of devaluations, coupled with failure by Japan to reform its economy as South Korea is doing, would have enormous fallout, the South Korean official warned.
"If Japan's GDP (gross domestic product) decreases by one percent or the yen depreciates by 10 percent, Asian countries' GDPs will decline by anything between 0.3 percent to 0.9 percent," Kim said.
"Japan lacks political and social consensus on a bold restructuring that will result in mass unemployment," he added.
According to investment bank Barclays Capital, the yen's weakness "could not have come at a worse time for Asia."
Regional exports were slowing under pressure of the US slowdown and Japan's ongoing crisis, the bank said in a report.
"Meanwhile, a laggardly process of banking sector and corporate reform since the financial crisis has resulted in subdued domestic demand in many countries," it said.
"As a result, Asia is currently experiencing below-trend growth which will widen its output gap this year."