South Korean Finance Minister Hyun Oh-seok said Japan’s weakening yen is hurting his country’s economy more than North Korean threats, an example of a “spillover” that merits discussion.

“Japan’s economic policies are doing their part to help the world economy recover,” Hyun said Wednesday in an interview in Washington before a meeting of Group of 20 finance chiefs. “But if this causes problems, and then the problems cause new responses from partnering nations, for example a currency war, the world economy will have a hard time,”

In his first month in the job, Hyun, 62, has been contending with a slide in Japan’s currency that is undermining South Korean exports, and tensions with North Korea that threaten to damp confidence. The won has gained more than 21 percent against the yen in the past six months on Japanese Prime Minister Shinzo Abe’s campaign for expanded monetary easing.

“Compared to the North Korea risk, a sliding yen is having a considerable impact on the real economy of South Korea,” Hyun said in the interview. “Depreciation of the yen has caused the spillover-effect phenomenon so this is worth discussing.”

At their last gathering in February, G-20 finance chiefs signaled that Japan could stimulate its stagnant economy as long as policy makers refrain from publicly advocating lower levels for the yen.

The G-20 nations will affirm a commitment to avoid weakening their currencies to gain a trade advantage, according to a draft statement prepared for the meeting this week in Washington, Bloomberg BNA reported. Bank of Japan Governor Haruhiko Kuroda said yesterday in Washington that other nations understand that the BOJ’s easing is aimed at spurring inflation rather than weakening the yen.

“South Korea’s exports may decline in the second half of this year unless the U.S. economy rebounds significantly, which is unclear for now,” said Lee Sang-jae, a Seoul-based economist at Hyundai Securities Co. “South Korea wants the G-20 to help curb or at least slow the yen’s declines. However Japan is trying its last resort and big powers such as the U.S. and Germany see little reason to put a brake on Japan.”

The finance minister said that recent movements in stocks, currencies and credit default swap premiums are “impacted by North Korea’s provocations,” while other events, including the Cyprus financial crisis, also have an effect.

Still, it’s “really difficult to see North Korea and the yen depreciation as the same level of risk,” he said. “North Korea is not having a big impact on the real economy.”

North Korea fired a long-range missile in December and carried out a nuclear weapons test in February in defiance of tightened United Nations sanctions. Kim Jong-un’s regime has threatened pre-emptive nuclear strikes against its enemies and last week pulled its workers from an industrial complex operated jointly with the South.
 

(Bloomberg)