Korean companies are rolling up their sleeves for a battle to minimize the impact of a weak yen

2014-01-01 18:04

Firms on alert over weak yen

Hyundai, Samsung diversify settlement currencies, increase overseas production
By Choi Kyong-ae
Korean companies are rolling up their sleeves for a battle to minimize the impact of a weak yen.
For Korea’s export-dependent economy, the fall of the yen is already dealing a blow to major exporters such as Hyundai Motor and Samsung Electronics, analysts said, expecting automakers to bear the greatest brunt of the yen’s decline.“Toyota has cut its costs by about 30 percent for the past three years following disruptions caused by the earthquake and tsunami in early 2011. In contrast, Hyundai Motor saw its labor costs jump by more than 10 percent a year in recent years,” Lee Hang-koo, an analyst at the Korea Institute for Industrial Economics & Trade (KIET), said Tuesday by telephone.
“A weak yen would give a bigger boost to Japanese carmakers’ bottom line in the coming quarters,” he said.
The yen’s depreciation buoys the competitiveness of Japanese-made vehicles abroad and increases the value of their overseas earnings when converted into the Japanese currency.
The yen is now much weaker than the won against the U.S. dollar, meaning Korean-made products are less price-competitive than those from Japan in overseas markets.
This has helped the earnings of Japanese carmakers. Toyota’s net profit surged 70 percent year over year to 438.4 billion yen ($4.5 billion) for the three months that ended Sept. 30.
But Hyundai Motor’s third-quarter net income rose just 3.9 percent to 2.25 trillion won ($2.1 billion) from a year earlier.
Hyundai seems to be the most aggressive in countering the fallout of the weak yen. In its multi-pronged effort, the country’s leading automaker is diversifying settlement currencies, increasing production outside the country, shifting its focus to high-end models and further cutting manufacturing costs, Hyundai said in an emailed statement.
“While closely monitoring the movements of the yen around the clock, we are setting up countermeasures to be less affected by the weakening yen,” an official from Hyundai Motor said.
Among other things, Hyundai “is planning to produce more localized models in its plants in the U.S., China and other emerging markets to minimize losses which may arise from a weaker yen,” said the official.
Currency swings and higher labor costs have been two major factors forcing Hyundai to produce 62 percent of its vehicles overseas as of November.
In other industries, Samsung Electronics and Korean Air are also taking steps to cope with the weak yen.
“We are further diversifying settlement currencies to cushion any impact resulting from currency volatility. The top priority is strengthening our fundamentals and competitiveness,” Samsung said in an emailed statement.
Korean Air said it is developing a variety of products to woo Japanese tourists to offset a sharp decline in outbound travel demand to Japan.
According to the Korea Automotive Research Institute, a 10-percent drop in the value of the yen against the won translates into a 12-percent decline in Korea’s vehicle exports.
KIET said the 10-percent fall would lead to a 2-6 percent decrease in Korea’s total exports.
On Monday, the yen hit its lowest level against the won in more than five years. The yen temporarily fell to 999.62 won per 100 yen before it finished trading at 1,001.61 won on the last trading day of the year.
Expecting a further decline of the yen heading into this year, analysts said the yen will likely trade between 950 won and 1,000 won per 100 yen, a potential threat to exporters competing with Japanese rivals.