The value of the yen has plummeted to historic lows, raising questions about its impact on the South Korean economy. In the past, a weaker yen directly weakened the export competitiveness of South Korean companies. However, recent assessments suggest that changes in industrial structure and global production expansion have altered this dynamic. While there are positive effects, such as reduced costs for sourcing Japanese parts and materials, there are also concerns about increased consumer spending in Japan due to rising travel.
On July 1, the yen-dollar exchange rate in the New York foreign exchange market surpassed 162 yen, continuing its upward trend from the previous day. This marks the lowest level for the yen against the dollar since shortly after the Plaza Accord in 1986, when the exchange rate fluctuated between 158 and 163 yen per dollar. As the yen reaches historic lows, attention is focused on its potential effects on the South Korean economy.
In previous periods of yen depreciation, South Korean export sectors competing with Japan, such as automobiles, steel, and machinery, faced direct impacts. However, recent analyses indicate that the direct effects of yen depreciation on South Korean exports have diminished due to global supply chain restructuring, the relocation of production bases overseas, and changes in the export structure centered around semiconductors.
The automotive sector, which was once severely affected by yen depreciation, is now experiencing a shift in the competitive landscape in the U.S. market. According to ITC TradeMap, Japan's exports of automobiles and parts to the U.S. remained virtually unchanged from $45.38 billion in 2015 to $45.42 billion in 2025. In contrast, South Korea's exports during the same period surged from $24.12 billion to $37.77 billion, a 56.6% increase. Despite the price competitiveness advantage of Japanese cars due to yen depreciation, South Korean automotive products have steadily improved in competitiveness.
The export portfolio has also significantly changed. South Korea's machinery exports to the U.S. more than doubled from $12.23 billion in 2015 to $27.04 billion in 2025, becoming the second-largest export category after electrical and electronic products. Exports of electrical and electronic products and components also increased by 73.5% during this period, expanding the export base centered around high-value-added items.
In the past, a significant yen depreciation quickly enhanced the price competitiveness of Japanese products. However, the recent depreciation of the won has somewhat offset changes in relative price competitiveness. Additionally, the decline in export competition between South Korea and Japan suggests that the impact of yen depreciation on South Korean exports may be more limited than in the past.
Yen depreciation is also expected to alleviate the burden on domestic companies importing Japanese parts and materials. Japan remains a key supplier of essential intermediate goods, such as electrical equipment, machinery, and precision instruments, for South Korean manufacturing. Last year, South Korea imported $11.31 billion worth of Japanese electrical equipment and parts, and $9.71 billion in machinery, making up the largest share of total imports. A weaker yen allows for the procurement of Japanese parts and equipment at lower costs, potentially easing the burden on the manufacturing sector.
However, energy imports, which significantly impact domestic import prices, are heavily reliant on countries other than Japan, making it difficult for domestic prices to drop significantly due to yen depreciation. From a consumer perspective, a weaker yen may accelerate visits to Japan and direct purchases of Japanese products. Even in a high exchange rate environment, the yen's weakness is partially offsetting travel costs, leading to a steady increase in consumer spending directed towards Japan.
The concern is that this period of yen depreciation may not end soon. Market forecasts suggest that the yen's weakness is unlikely to be resolved quickly. Although the Bank of Japan has raised interest rates, uncertainties in U.S. monetary policy and a growing preference for U.S. assets due to the AI investment boom contribute to this outlook. Additionally, Japan's trade deficit and rising energy import costs are cited as factors contributing to yen weakness.
Experts are weighing the possibility of further yen depreciation. According to the Asahi Shimbun, Ueno Daisaku, chief foreign exchange strategist at Mitsubishi UFJ Morgan Stanley, stated, "The yen is being sold off due to a combination of factors, and even if the government and the Bank of Japan intervene, the effects are likely to be limited." Shibata Hideki, chief strategist at Tokai Tokyo Intelligence Lab, noted, "There are significant dollar sell orders around the 162 yen level, but if this level is clearly breached, stop-loss orders could lead to even more yen selling, with the next target potentially being 165 yen."
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.