South Korea has warned that G8 leaders need to do more to tackle the “unintended consequences” of Japan’s monetary easing when they gather for a summit later this month amid mounting concerns about the knock-on effects of a weaker yen.
In an interview, Hyun Oh-seok, the South Korean finance minister and deputy prime minister, said that international co-ordinated action was needed to mitigate the impact of so-called Abenomics on currency markets.
The weaker yen had begun to hurt South Korean exports, Mr Hyun said, and was having unforeseen spillover effects on the global economy.
“The point is that these monetary policies are having quite a negative impact,” Mr Hyun told the Financial Times.
The G8, he said, needed to come up with ways to address the issue at its summit later this month in Northern Ireland.
“We need some kind of co-ordinated efforts to prevent these kinds of unintended side-effects from [Japan’s new] monetary policy,” he said. “Whether it is intended or not, the result [of the depreciation of the Japanese yen] is quite quick.”
The impact on South Korea has been particularly acute because most of its top 10 exports compete directly with Japan. But he said similar concerns were shared by Germany.
Prime Minister Shinzo Abe has advocated a three-prong push to revive the Japanese economy, dubbed Abenomics, and based on greater fiscal stimulus, looser monetary policy, and longer-term structural reforms. He has been helped by Haruhiko Kuroda, the new head at the Bank of Japan, who has promised to buy enough government bonds to double the amount of cash in the economy within two years.
The result of their joint push has been a sharp weakening of the yen and big gains in Japanese equity markets, though the latter have shown signs of faltering in recent weeks.
G8 leaders and finance ministers have so far stopped short of publicly criticising the moves, believing that the resumption of faster economic growth in Japan would be a greater good for the global economy and overshadow any concerns over the impact of currency swings on the country’s trading rivals.
Keen to defuse fears over the revival of what have in the past been called “the currency wars”, the G8 and G20 have both issued statements this year saying countries should target domestic growth rather than exchange rates with monetary policy. Japan insists it is doing exactly that.
But Mr Abe is likely to face more questions over the direction and impact of Abenomics at this month’s G8 summit.
South Korea is part of a group of countries that is increasingly concerned that, while Mr Abe’s policy ambitions may respect the guidelines set out in G8 and G20 communiqués, the international fallout from Tokyo’s moves is growing.
Separately, Mr Hyun said South Korea was now examining the impact of Japan’s recent announcement that it was joining talks between the US and 10 other countries over the establishment of a Trans-Pacific Partnership to encourage free trade in the Pacific basin. According to the US, with Japan’s entry, the TPP countries would account for 40 per cent of global GDP and one-third of all world trade.
South Korea already has bilateral trade agreements with the EU and the US. It is also discussing bilateral agreements with China and Canada.
“Currently we have preferential treatment, in terms of trade, through our bilateral agreements. We have to think about the impact of Japan’s joining TPP on overall trade with partners. It might, for example, affect our trade with the US, Australia and New Zealand,” Mr Hyun said.
Asked whether South Korea intended to join the TPP, the minister was circumspect. “We have to analyse the role of the TPP first. We have to think about the sequence and our priorities. What is the most effective trade agreement?”
Additional reporting by Simon Mundy in Seoul