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back to index backASIAtalk May,  2007


Japan Is Booming While Korea Languishes

The Japanese economy is riding a boom thanks to the weak yen while the Korean economy is oppressed by the strong won. Japanese companies are posting record corporate profits, and their current account surplus is at an all-time high amid Japan's longest-ever economic boom. Employment and land prices, two major indicators of business sentiment, are also brisk.

The island country's Shinko Research Institute said Wednesday the operating profit of 1,200 Japanese companies listed on the Tokyo Stock Exchange rose for a fourth straight year and hit a record high of 32 trillion yen last year, up 8 percent from the previous year. Their current account surplus jumped 8.7 percent compared to the year prior to an all-time high of 19.83 trillion yen in 2006.

Japanese firms' trade surplus dwindled because imports soared due to high oil prices. But actual exports increased 14.3 percent to 71.61 trillion yen, another all-time high. The recent boom is basically driven by the weak yen. On Wednesday, the yen fell to the level of Y120 per dollar again. The Korean won rose to W775 per 100 yen, returning to pre-financial crisis levels. The weak yen has boosted the price edge of Japanese products.

In Korea, by contrast, corporate profits have dropped three years in a row. The net business profit of 541 firms listed on the Korea Exchange went down from W49.5 trillion (US$1=W930) in 2004 to W44.39 trillion last year. Their current account surplus also decreased to US$6.09 billion. Korea recorded a current account deficit of US$1.52 billion as of March this year, but Japan posted a surplus of US$31 billion in the first two months this year. The strong won also boosted the travel account deficit and affected goods accounts due to sluggish exports

Good business in Japan is reinvigorating employment and land prices. The country recorded 4.1 percent unemployment in 2006, the lowest since 1997. The recruitability index, the ratio of job openings to job applicants and an indicator of labor market sentiment, rose 1.06 times in 2006. It was the first time that job openings outnumbered job applicants in 14 years, meaning nearly all Japanese jobseekers find employment.

In Korea's, the recuritability ratio was a mere 0.48 times last year. In the fourth quarter of last year, the Japanese economy grew at the rate of 5.5 percent and growth rate is predicted to be 2.6 percent in the first quarter of this year, well above the potential growth rate of around 1 percent. The potential rate is the growth a country is deemed capable of achieving by taking advantage of all usable resources. In other words, Japanese corporations exceeded their business goals by increasing investment in equipment and employment. Korea's actual economic growth rate has consistently lagged behind the potential growth rate.

Source: Chosun - GAI


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