The yen’s slide rattled shares of some non-Japanese exporters in Asia on Monday, with South Korean car makers hit particularly hard on worries that rivals in Japan will gain a pricing edge in global markets.
The yen plummeted in value Friday and continued to drop Monday, after the Bank of Japan unexpectedly announced additional stimulus measures in an effort to lift inflation. A weaker yen makes Japanese products more competitive in overseas markets. The yen was at ¥113.89 per dollar midday Monday in New York, around a seven-year low and sharply weaker than ¥109.22 on Thursday before the Bank of Japan announcement.
In Seoul, shares of auto makers Hyundai Motor and Kia Motors fell 5.9% and 5.6%, respectively, on Monday.
South Korean and Japanese companies often compete head-to-head in the same product groups in global markets, notably cars and electronics goods.
From the Bank of Japan’s standpoint, “you’re giving your industry a head start relative to someone else’s,” said Markus Rosgen, regional head of equity strategy at Citi in Hong Kong. “The perception in the equity market will be that they [South Korea] will have to take a hit from the lack of competitiveness versus the Japanese.”
South Korea’s benchmark Kospi fell 0.6% to 1952.97. Against the yen, the won rose as much as 1.4% Friday.
Japanese markets were closed Monday; the Nikkei Stock Average surged 4.8% Friday on the Bank of Japan news.
Hyundai Chief Financial Officer Lee Won-hee said the weakening yen is one of the company’s biggest concerns, but Hyundai intends to counter the negative currency effect by increasing sales of higher-end products. Kia declined to comment.
Hyundai and Kia had already been losing ground to Japanese rivals that have made gains in the U.S., one of its most important markets, by boosting sales incentives to new-car buyers—a tactic that could be bolstered by a weaker yen. Toyota Motor Corp. recently raised incentives to new-car buyers in the U.S. by as much as 26% to $2,400 per car, from $1,900 previously. Other Japanese car makers, including Nissan Motor Co. and Honda Motor Co. , have also raised incentives to U.S. buyers.
“Last year, Japanese car makers launched new cars, meaning there wasn’t much need to pay high incentives,” said Nomura analyst Angela Hong. “But the new-car effect is fading now when the U.S. demand remains weak. So, many of them are offering big discounts, taking advantage of the yen’s renewed weakness.”
Korean auto-parts makers such as Hyundai Mobis Co. and textile companies and steelmakers, including Posco , are fiercely competing with Japanese rivals, so they can be negatively affected by the yen’s weakness, according to an official at the Federation of Korea Industries.
“Japanese steelmakers can have a greater room to cut product prices for now, but eventually, a weaker yen means they have to pay more to buy raw material such as iron ore and coal,” said Posco spokesman Kang Min-suk. “So in that sense, we’re not at disadvantage against Japanese rivals.” Posco shares fell 0.6% Monday.
“We supply a lot of parts to Hyundai and Kia, so their trouble is our trouble,” said Danny Cho, a Hyundai Mobis spokesman. “We’re also supplying auto parts to other global car makers. A weaker yen will enable Japanese auto-parts makers to cut prices, which will hurt our pricing competitiveness. We’re cautiously watching the yen’s move.” Hyundai Mobis shares fell 4% Monday.
Bank of Korea Governor Lee Ju-yeol said Monday he was closely monitoring Japan’s stimulus program, which he said “came earlier than the market expected.”
But while the BOJ’s latest measures may cause concern about the specter of a currency war, some experts say South Korea needn’t worry.
A paper from the International Monetary Fund this year showed the sensitivity of Korea’s exports to the won/yen exchange rate fell by about one-half since the late 1990s. It pointed to growing differences in the two nations’ products in information technology. For instance, while Japan makes system chips and game consoles, South Korea has focused on smartphones, memory chips and liquid-crystal displays.
South Korean manufacturers also have increasingly moved production offshore to benefit from lower costs in China and elsewhere, or to be closer to developed markets. The IMF said Korean auto manufacturers made 73% of total output offshore in 2012 versus 38% in 2008. Smartphone markers went to 80% from 16% in the same period.
Hyundai made almost two-thirds of its cars last year overseas, up from just a fifth a decade ago.
“Hyundai’s U.S. sales depend more on the quality and other appeals of its cars,” said Dongbu Securities analyst Kim Pyung-mo. “I see today’s sharp share-price fall is a knee-jerk reaction. Foreigners are selling Korean shares anyway.”
Analysts expect the yen to remain weak for some time. Policies of major central banks across the world are diverging, with the U.S. Federal Reserve reining in its monetary-stimulus program and Japan continuing its easy-money policies, suggesting interest rates will continue to move farther apart—and making prospects for South Korean exporters especially bleak.
Strategists at Barclays noted that “central banks in industrial economies like Korea, Taiwan and China, which compete closely with Japanese exporters in international markets, will likely be more compelled to limit currency appreciation,” despite their strong trade balances.
Other currencies sensitive to the yen because of large trade flows with Japan, such as the New Taiwan dollar and the Singapore dollar, also have jumped against the yen since the BOJ announcement. Currencies including India’s rupee, Indonesia’s rupiah and Thailand’s baht are expected to climb as investors seeking higher-yielding assets in the region pour money in.
In India, companies with Japanese units and subsidiaries, such as Maruti Suzuki and Hitachi Home & Life Solutions, a subsidiary of Hitachi Appliance Inc., rose after the Bank of Japan’s decision Friday.
—Kwanwoo Jun in Seoul contributed to this article.
http://online.wsj.com/articles/weak-yen-hits-south-korean-car-makers-1415014783
The yen plummeted in value Friday and continued to drop Monday, after the Bank of Japan unexpectedly announced additional stimulus measures in an effort to lift inflation. A weaker yen makes Japanese products more competitive in overseas markets. The yen was at ¥113.89 per dollar midday Monday in New York, around a seven-year low and sharply weaker than ¥109.22 on Thursday before the Bank of Japan announcement.
In Seoul, shares of auto makers Hyundai Motor and Kia Motors fell 5.9% and 5.6%, respectively, on Monday.
South Korean and Japanese companies often compete head-to-head in the same product groups in global markets, notably cars and electronics goods.
From the Bank of Japan’s standpoint, “you’re giving your industry a head start relative to someone else’s,” said Markus Rosgen, regional head of equity strategy at Citi in Hong Kong. “The perception in the equity market will be that they [South Korea] will have to take a hit from the lack of competitiveness versus the Japanese.”
South Korea’s benchmark Kospi fell 0.6% to 1952.97. Against the yen, the won rose as much as 1.4% Friday.
Japanese markets were closed Monday; the Nikkei Stock Average surged 4.8% Friday on the Bank of Japan news.
Hyundai Chief Financial Officer Lee Won-hee said the weakening yen is one of the company’s biggest concerns, but Hyundai intends to counter the negative currency effect by increasing sales of higher-end products. Kia declined to comment.
Hyundai and Kia had already been losing ground to Japanese rivals that have made gains in the U.S., one of its most important markets, by boosting sales incentives to new-car buyers—a tactic that could be bolstered by a weaker yen. Toyota Motor Corp. recently raised incentives to new-car buyers in the U.S. by as much as 26% to $2,400 per car, from $1,900 previously. Other Japanese car makers, including Nissan Motor Co. and Honda Motor Co. , have also raised incentives to U.S. buyers.
“Last year, Japanese car makers launched new cars, meaning there wasn’t much need to pay high incentives,” said Nomura analyst Angela Hong. “But the new-car effect is fading now when the U.S. demand remains weak. So, many of them are offering big discounts, taking advantage of the yen’s renewed weakness.”
Korean auto-parts makers such as Hyundai Mobis Co. and textile companies and steelmakers, including Posco , are fiercely competing with Japanese rivals, so they can be negatively affected by the yen’s weakness, according to an official at the Federation of Korea Industries.
“Japanese steelmakers can have a greater room to cut product prices for now, but eventually, a weaker yen means they have to pay more to buy raw material such as iron ore and coal,” said Posco spokesman Kang Min-suk. “So in that sense, we’re not at disadvantage against Japanese rivals.” Posco shares fell 0.6% Monday.
“We supply a lot of parts to Hyundai and Kia, so their trouble is our trouble,” said Danny Cho, a Hyundai Mobis spokesman. “We’re also supplying auto parts to other global car makers. A weaker yen will enable Japanese auto-parts makers to cut prices, which will hurt our pricing competitiveness. We’re cautiously watching the yen’s move.” Hyundai Mobis shares fell 4% Monday.
Bank of Korea Governor Lee Ju-yeol said Monday he was closely monitoring Japan’s stimulus program, which he said “came earlier than the market expected.”
But while the BOJ’s latest measures may cause concern about the specter of a currency war, some experts say South Korea needn’t worry.
A paper from the International Monetary Fund this year showed the sensitivity of Korea’s exports to the won/yen exchange rate fell by about one-half since the late 1990s. It pointed to growing differences in the two nations’ products in information technology. For instance, while Japan makes system chips and game consoles, South Korea has focused on smartphones, memory chips and liquid-crystal displays.
South Korean manufacturers also have increasingly moved production offshore to benefit from lower costs in China and elsewhere, or to be closer to developed markets. The IMF said Korean auto manufacturers made 73% of total output offshore in 2012 versus 38% in 2008. Smartphone markers went to 80% from 16% in the same period.
Hyundai made almost two-thirds of its cars last year overseas, up from just a fifth a decade ago.
“Hyundai’s U.S. sales depend more on the quality and other appeals of its cars,” said Dongbu Securities analyst Kim Pyung-mo. “I see today’s sharp share-price fall is a knee-jerk reaction. Foreigners are selling Korean shares anyway.”
Analysts expect the yen to remain weak for some time. Policies of major central banks across the world are diverging, with the U.S. Federal Reserve reining in its monetary-stimulus program and Japan continuing its easy-money policies, suggesting interest rates will continue to move farther apart—and making prospects for South Korean exporters especially bleak.
Strategists at Barclays noted that “central banks in industrial economies like Korea, Taiwan and China, which compete closely with Japanese exporters in international markets, will likely be more compelled to limit currency appreciation,” despite their strong trade balances.
Other currencies sensitive to the yen because of large trade flows with Japan, such as the New Taiwan dollar and the Singapore dollar, also have jumped against the yen since the BOJ announcement. Currencies including India’s rupee, Indonesia’s rupiah and Thailand’s baht are expected to climb as investors seeking higher-yielding assets in the region pour money in.
In India, companies with Japanese units and subsidiaries, such as Maruti Suzuki and Hitachi Home & Life Solutions, a subsidiary of Hitachi Appliance Inc., rose after the Bank of Japan’s decision Friday.
—Kwanwoo Jun in Seoul contributed to this article.
http://online.wsj.com/articles/weak-yen-hits-south-korean-car-makers-1415014783
