Data released by the central bank last week showed that the profitability of Korea’s listed firms slipped in the second quarter as a stronger won hit manufacturing exporters. The average ratio of operating profit to sales, a key gauge of profitability, stood at 4.2 percent in the April-June period, dropping from 5.4 percent in the same period last year.

Major exporters including automakers, shipbuilders and electronics firms saw their profits wane in the second quarter. Hyundai-Kia Automotive Group, for instance, suffered a 13 percent decrease in its operating profit in the three-month period.

This sluggish performance by exporters struggling with the currency appreciation was seen as a main factor in Korean companies’ sales growth rate dropping to the lowest level in five years. Their sales increased by 2.9 percent from a year earlier in the second quarter, the slowest pace since a 3 percent growth in the third quarter of 2009, according to data from the Bank of Korea that was collected through a survey of 1,651 firms listed on the local stock market.

Previous statistics show a 10 percent appreciation of the won resulted in a 0.41 percent decrease in local businesses’ profitability. What is particularly worrying now is the rapid strengthening of the Korean currency against the Japanese yen. The yen declined to 955 won to 100 yen last Thursday, the lowest level in six years. Major global financial institutions predict the won-yen exchange rate will drop to the 800 won level in the latter half of next year.

The weaker yen has severely undercut the price competitiveness of Korea’s products in overseas markets as more than half of its top 100 export items overlap with those of Japan. In the first nine months of this year, the won-yen exchange rate stood at an average of 1,013.7 won, lower than the break-even level of 1,044.2 won cited by 316 large corporations polled by the Federation of Korean Industries earlier this year.

A growing number of Korean manufacturing exporters have found it beyond their means to cope with the steeper-than-expected depreciation of the yen.

The further weakening of the yen is likely to make a bigger dent in Korea’s shipments abroad and hamper the recovery of its economy, the fourth-largest in Asia. In July, the central bank trimmed its outlook for this year’s economic growth to 3.8 percent from 4 percent. But the revised forecast may still turn out to be too rosy if exports continue to be hurt by the declining won-yen exchange rate.

The government has pushed for a set of measures to reinvigorate the economy. But their effects will inevitably be limited, without stopping or easing the rapid appreciation of the won against the yen to help keep Korean exporters competitive.

Japan’s expansionary monetary policy can be seen as the main reason for the weaker yen. The negative economic impact of its move to raise the sales tax has also led to a further depreciation of the Japanese currency.

On the other hand, Korea has continued to record a large current account surplus, resulting in the sharp appreciation of the won. The country’s current account surplus, which was extended for the 30th month in a row in August, was attributable mainly to a sharp decrease in imports amid the prolonged economic downturn.

Government policymakers need to be more active and imaginative in keeping the value of the won at a proper level. They should push for measures to reduce the country’s current account surplus and defuse upward pressure on the won by boosting domestic spending. A further interest rate cut may help not just stimulate the economy but decelerate the appreciation of the won.