On Friday, we learned that South Korean exports unexpectedly jumped by 3.2% year-over-year, defying economists’ expectations for a decline.
What makes this number so impressive is that Japan’s extraordinary efforts to boost its economy (i.e. Abenomics) through yen devaluation seems to be having little effect on Korea.
According to Bloomberg, South Korea’s won has strengthened 18% against Japan’s yen in the last six months.
In theory, this would make South Korea’s exported goods much less competitive than Japan’s goods. But this clearly doesn’t seem to be occuring.
“The Korean economy is in our view competitive even at a higher exchange rate,” said Societe Generale’s Klaus Baader.
If Korea isn’t losing from Japan’s policies, then that would suggest Japan isn’t gaining too much either.
Credit Suisse recently commented on this in a blog post (emphasis added):
“Our analysis thus indicates that a depreciation of the yen will not boost export volume sufficiently over a one-year horizon to offset the negative impact of a deterioration in the terms of trade,” Credit Suisse analysts said in a report entitled “Devaluation of the Yen Would Widen Trade Balance Deficit.”
So, why isn’t the depreciation in the value of the yen translating into stronger demand for Japanese exports and weaker imports?
Part of the reason, according to Credit Suisse economists Hiromichi Shirakawa and Takashi Shiono, is that Japan has a virtual monopoly over some products, such as certain electronic components and high-tech materials, which means fluctuations in the value of the yen have limited impact on overseas demand.
Indeed, Korea also has electronics that dominate.
“According to press reports based on a statement from the Ministry of Trade, Industry and Energy strength in exports reflected strong sales of wireless communication devices (62.5% yoy) as well as strong demand for Korean exports in the key export markets China (16.6% yoy) and US (21.6%),” said SocGen’s Baader.
Based on the Korean trade data, it seems economists may overestimating the impact of Abenomics on global trade.
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