The yen has just done something it hasn't done in 40 years: it broke past 163 to the dollar, a level not seen since 1986.
In Tokyo, that's being read as bad news for Japanese households, who now face pricier imports and a shrinking real income. But Seoul shouldn't be watching this from the sidelines.
A weaker yen doesn't just weaken Japan's currency — it chips away at Korean export competitiveness and drags the won down with it.
The won has been softening against the dollar too, but the yen is falling faster. That's the awkward part.
Even as the won loses value, Korean goods are somehow becoming less price-competitive relative to Japanese ones. Korean firms are stuck importing oil, gas and raw materials in expensive dollars, while fighting for market share abroad against Japanese rivals who get a built-in discount from their own currency's collapse.
It's a cost squeeze and a competitiveness squeeze at the same time.
This isn't confined to a couple of legacy industries. Korea and Japan go head-to-head across autos, steel, machinery and petrochemicals, but also in semiconductor equipment, batteries, robotics and defense manufacturing — precisely the sectors both countries are betting their industrial futures on.
A prolonged weak yen lets Japanese firms either cut export prices or plow their currency-driven windfall into R&D and capital investment. Korean firms, facing the same global buyers, are left choosing between defending market share by cutting margins or protecting margins by ceding orders. Smaller exporters, with the least room to absorb either option, take the hardest hit.
Some argue Korean firms have closed the technology gap enough that yen weakness doesn't sting the way it once did. That may be true in segments where design and quality dominate.
But in auto parts, machinery and materials — industries won on price as much as performance — an exchange-rate gap translates directly into lost orders. If a Japanese supplier can offer a comparable part for less, the incentive for a buyer to choose Korea shrinks accordingly.
There's a second-order effect, too. Won and yen tend to move together as "Asian currencies" in the eyes of global investors. When the yen keeps sliding, foreign capital is more inclined to treat the won as part of the same weak-currency basket and sell accordingly — a dynamic that only intensifies if global financial markets turn volatile.
A weaker won might sound like a small silver lining for exporters, but the costs outweigh the benefit. Import prices for oil, gas and grain rise, corporate foreign-currency funding gets more expensive, and a fragile consumption recovery gets harder still as living costs climb.
This also complicates the Bank of Korea's job considerably. Domestic conditions argue for lower rates, but a weakening won and rising import prices argue against moving too quickly. Hold rates too high for too long to defend the currency, and households, the self-employed and small businesses absorb the interest burden instead. Super yen weakness is narrowing Korea's monetary policy options from both directions at once.
The government's response can't stop at currency intervention. Smoothing out disorderly swings in the foreign exchange market is a stopgap, not a fix — it does nothing to close the underlying competitiveness gap.
What's needed is a sector-by-sector look at where the yen shock is hitting hardest, along with expanded exchange-rate insurance and policy financing, particularly for smaller exporters heavily exposed to raw material imports.
More fundamentally, Korean industry needs to build a structure that isn't so easily rattled by currency swings in the first place. While Japanese companies redirect their yen-driven profits into technology and capacity, Korean firms shouldn't be left boxed in by high interest rates, regulation and a sluggish domestic market.
Without gains in core technology and productivity, the competitiveness gap will outlast the currency cycle that exposed it.
A won that's weak, paired with a yen that's weaker still, is about the worst combination Korea could face right now — rising import costs, falling export competitiveness, and a monetary policy squeezed by currency instability on both sides.
Super yen weakness shouldn't be filed away as a Japanese problem. It's a compound risk to the Korean economy, and it calls for action now, not after the fact.
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