SEOUL, April 23 (Yonhap) -- The weakening trend of the Japanese currency is raising concerns that South Korea's exports may lose its competitive edge, dampening the country's efforts to boost its lackluster economy, analysts say.
The Japanese yen gained ground somewhat per the U.S. dollar on Tuesday, but it weakened toward the psychologically important 100 level per the greenback on Monday, which could be the weakest in four years.
The yen has been under heavy downward pressure to the dollar on the back of Japan's "Abenomics" -- a mixture of aggressive monetary and fiscal policies preached by its Prime Minister Shinzo Abe.
"The yen's weakness has been driven by Japan's massive monetary easing. The yen could touch the 100 per-dollar level as the Group of leading 20 nations was seen as condoning Japan's move," said Jeon Seung-ji, a currency analyst at Samsung Futures Co.
The yen has fallen more than 20 percent against the U.S. dollar since September and in turn, the Korean currency has appreciated more than 28 percent per the yen.
Analysts said that the yen's depreciation has unnerved Seoul policymakers as prices of Korean products become relatively more expensive in overseas markets, compared with their Japanese rivals. Many of Korea's key shipments including steels and machinery overlap with those of Japan.
"If the yen's weakening trend is prolonged, Korea's exports cannot help taking a hit from the yen's drop, raising a possibility that Korea's growth projection could turn downward," said Jean Lim, a research fellow at the Korea Institute of Finance.
South Korea's economy is highly affected by the global trade trends as its exports account for about 50 percent of the economic output.
The government sharply lowered its 2013 growth estimate to 2.3 percent from 3 percent, citing tough economic conditions at home and abroad. The Bank of Korea (BOK)'s 2013 growth projection was lowered to 2.6 percent from its earlier estimate of 2.8 percent due to the yen's weakness and the global slowdown.
The central bank earlier said that exports of goods will likely grow 5.9 percent in the second half after rising 4.5 percent in the first half as the global economy is likely to perform better.
"The yen's weakness has yet to fully affect Seoul's export volumes so far, but if the yen's weakening trend continues, its impacts on Seoul's exports may become conspicuous starting the second quarter," said Lee Sang-jae, an economist at Hyundai Securities Co.
"If the recovery of the U.S. economy remains weak, there is a chance that the Korean economy would grow at a slower pace this year," he added. **
The Hyundai Research Institute said in a recent report that if the yen depreciates to hit 100 per greenback, the value of Korea's total exports would fall by 3.4 percent.
Seoul's steel products, which tightly vie with Japanese rivals in overseas markets, are most likely to bear the brunt of a weaker yen as exports of steel products would decline 4.8 percent when the dollar hits 100 yen, it showed. Outbound shipments of South Korea's petrochemical products and machinery may fall 4.1 percent and 3.4 percent, respectively.
The BOK said in its recent report that negative impacts of the yen's weakness on Seoul's exports are seen as being less severe than in the past, as Korea has diversified its export destinations and the non-price competitiveness of its exports has improved.
But it warned that smaller local exporters are likely to be hit by the yen's weakness as the Japanese currency's weakening trend may accelerate in the first half.
According to the Korea International Trade Association, 24 out of 49 Korean goods, which tightly vie with Japanese rivals in overseas markets, posted an on-year decline.
Korea's exports of automobiles are estimated to have declined 3.6 percent in the first quarter after falling 3.1 percent in the fourth quarter of last year, data showed.
"Korea's exports of its key items, vying with Japanese rivals, have logged declines," said an official at the commerce ministry. "The government is mulling helping local firms cope with foreign exchange risks via trade insurance scheme in the short term."
Mindful of risks from high currency volatility, the government has said that it plans to aggressively map out measures to stabilize the financial markets if needed. The government also said it will focus on expanding supports to smaller exporters, which are vulnerable to currency risks.
Analysts said that the yen's drop is feared to dampen the Seoul stock market as corporate earnings would be crimped by the won's gain. Japan's rising stock markets could lead foreign investors to shun Korean shares, they added.
As for the bond market, if the yen's weakening trend accelerates, investors' demand for Korea's bonds may increase as expectation for a rate cut could be revived.
"Hitting the 100 per-dollar level is symbolic, but it could cement expectations that the yen would further weaken," said Yoon Yeo-sam, a fixed-income analyst at KDB Daewoo Securities Co.
He said that if concerns for Seoul's export competitiveness increase, market players' bet on a rate cut could intensify on prospects that the central bank may cut the key rate to spur the economic growth.