U.S. dollar overtakes yen as top Korea-Japan trade settlement currency

An increasing number of both Korean and Japanese companies are opting to settle their bilateral trade with the world’s key currency ― the U.S. dollar ― over the Japanese yen.

This is due to Japan’s weakening currency since the world’s third largest economy launched fiscal stimulus along with aggressive monetary easing to recover from its two-decade-long stagnant growth.

A weaker yen would result in foreign exchange losses for those companies trading goods between the two sides as currency deprecation will make Korean imports to Japan more expensive. Korean companies buying Japanese products such as industrial parts would also be able to keep on paying them with the cheaper yen.

This market side effect stemming from a weaker yen are leading both sides to settle more trade bills with stable currency ― the dollar, which has overtaken the yen as the two sides’ key settlement currency.

Korean companies’ trade settlements via the Japanese yen for imports of Japanese goods accounted for about 44 percent in the first quarter of this year, according to data by the Bank of Korea, Korea Customs Service and the Korea International Trade Association, compiled by a local newswire.

This dropped from 47 percent in the fourth quarter of last year and 53 percent in the second quarter of 2012.

Meanwhile, trade settlements via the greenback accounted for 52 percent in the first quarter of 2013, up from 44 percent in the second quarter of 2012.

Japanese companies using the yen to pay for Korean imports also decreased, accounting for about 42 percent in the first quarter of this year, down from 50 percent in the fourth quarter of last year.

The yen as settlement currency for Korean imports to Japan reached about 53 percent in the second quarter of 2012. The dollar accounted for 55 percent in the first quarter this year, up from 44 percent in the second quarter of 2012.

The Korean won has gained about 20 percent against the yen since October, while the yen breached 103 yen to the dollar Monday.

By Park Hyong-ki (hkp@heraldcorp.com)