Deepening Korean crisis may hurt Japan badly

Tokyo, Dec 13: The deepening economic crisis in South Korea could deal a severe blow to Japan's manufacturing and financial sectors, econom...

Tokyo, Dec 13: The deepening economic crisis in South Korea could deal a severe blow to Japan’s manufacturing and financial sectors, economists in Tokyo said. Japanese manufacturers are expected to suffer a double punch of a slowdown in their exports to South Korea, Japan’s second-largest export market after the United States, and also stiffer competition for overseas markets following the Korean currency’s freefall.

Meanwhile, Japanese banks, already suffering from huge non-performing loans at home, are facing more risks on their exposure to South Korea, economists said.

In the past, a pickup in Korean exports was accompanied by a surge in Japanese exports of capital goods to South Korea, due to Korean manufacturers’ heavy dependence on imported Japanese manufacturing equipment.

But, that is unlikely to be the scenario this time, as Korean manufacturers have plenty of idle capacity within their existing facilities after hefty capital spendings in 1994 and 1995, economists said.

"Due to a credit crunch and a slowdown in domestic demand, one cannot expect big capital spendings by Korean firms. So Japanese exports of capital goods to South Korea are likely to slow down," said Shunta Yamato, senior analyst of the international research department at Daiwa Institute of Research Ltd. Japan’s exports to South Korea in the first half of this fiscal year ending in March 1998 totalled 1.59 trillion yen, accounting for about six per cent of its total exports and about 15 per cent of its exports to Asia.