Weekend Economists in the Children's Hour: Hallowe'en to El Dia de Los Muertos, 2014

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55. Kuroda’s Easing in Japan Seen Adding to Pressure on Korea’s Lee

http://www.bloomberg.com/news/2014-10-31/kuroda-s-easing-in-japan-seen-adding-to-pressure-on-korea-s-lee.html

The Bank of Japan’s surprise decision to ease monetary policy further may increase pressure on South Korea’s central bank to cut its benchmark interest rate again.

The yen’s tumble after BOJ Governor Haruhiko Kuroda boosted unprecedented stimulus yesterday will help make some Japanese products cheaper in export markets. That adds to competitive pressure for South Korea that could prompt action from Bank of Korea Governor Lee Ju Yeol, say economists.

“If the yen continues to weaken, this will pose further downside risks to Korea’s exports,” Ronald Man of HSBC Holdings Plc in Hong Kong wrote in a note. “Lower export growth will weaken Korea’s economic outlook and, in turn, markets have naturally priced-in a higher probability of a rate cut.”

The yen dropped 2.2 percent against the dollar at 7:02 p.m. yesterday in Tokyo to trade near a six-year low. The Korean won fell 1.2 percent against its U.S. counterpart yesterday, it’s biggest drop in 16 months, amid speculation authorities in Seoul will move to weaken the currency.