Financial authorities foresee limited impact on stocks and foreign exchanges


The worst earthquake in Japanese history has increased fears of a dip in the South Korean market, which is already fragile because of Middle Eastern unrest and price volatility.

A 9.0-magnitude quake slammed the country’s northeast coast on Friday, killing more than 10,000 people, sending tsunami fears across the Pacific, and raising the radiation threat from damaged nuclear plants.

The government and economists in Seoul are yet to assess the exact local impact of the damage in the country’s second-largest trading partner but said increased volatility in the region and a weaker yen could hurt exporters here.

“A 2-3 percent cut is possible in Japanese GDP should the damage be similar to the 1995 Kobe earthquake. A prolonged crisis could weaken the yen and hurt Korean exporters,” said Kim Gyu-pan, a research fellow at the Korea Institute for International Economic Policy.

Finance Minister Yoon Jeung-hyun said the impact from the quake is limited and vowed to take action to minimize potential risk in the market.

“For now, Japan’s quake is expected to have limited impact on the Korean economy, but uncertainties remain high,” Yoon said during an emergency economic coordination meeting on Sunday.

“As higher oil prices are increasing economic uncertainties and Japan is grappling with the impact of the quake, we need to consistently keep an eye on developments. If necessary, we need to be proactive to minimize negative impact of the disaster on the Korean economy.”

Increasing appetite for safer assets could further appreciate the won against the yen and hurt component and electronics exporters, economists say. But local competitors of damaged Japanese manufacturers, such as in auto industry, could see their sales rise.

Toyota Motor Corp. and two other automakers suspended production at their domestic vehicle assembly in Japan following Friday’s deadly earthquake. Toyota plans to close its five domestic plants, including those operated by its subsidiaries, and 12 auto parts plants, according to Toyota officials.

The yen strengthened the most against the dollar since Dec. 3 on Friday, rising 0.7 percent to 82.05 after the most devastating earthquake in Japanese history increased bids for safe assets.

The won fell 0.9 percent against the U.S. dollar late Friday, closing at 1,124, as the earthquake spurred demand for dollars and yen -- the two currencies considered safe-haven assets.

The KOSPI fell 1.3 percent to 1955.54 on Friday, ending the week 2.45 percent lower from a week earlier.

“The country is unlikely to face massive chaos when the markets open on Monday although some considerable changes are worried to take place,” a senior BOK official said at an emergency meeting convened over the weekend.

“But the impact on the foreign exchange market can be large when the Japan risk is added with the uncertainties over the unrest in the Middle East and indebted Europe,” he said. “We will especially monitor the movements of foreign capital and bond market in general.”

The Financial Services Commission and the Financial Supervisory Service also held an emergency meeting Sunday to assess whether the quake will derail the local financial market. The regulators vowed to minimize the volatility in stocks, currency and imports of commodities.

Finance Minister Yoon asked the Ministry of Culture, Sports and Tourism to assess the damage on local tourism as the industry would likely be directly affected by the quake. Japanese tourists made up 34.4 percent of total foreign visitors in 2010.

The Ministry of Land, Transport and Maritime Affairs and the customs office have set up task forces to expedite the shipping process. 

 Managers of Japan Equity Fund said the affected region is only a small part of Japan.

“The earthquake today attacked a broad area of the eastern part of Japan. However, we do not consider the impact of this earthquake on the Japanese economy to be too serious because the damage is concentrated in the northeastern part of the country in the Tohoku prefecture and Tohoku’s economy only accounts for around six percent of nominal GDP for all of Japan,” Soichiro Monji, chief market strategist at Daiwa SBI said.

By Cynthia J. Kim (cynthiak@heraldcorp.com)