[Click eStock] "Focus on Korean Automobile Sector When Yen Strengthens"

[Image source=Yonhap News]

DB Financial Investment suggested on the 1st the possibility of a stock price rebound in the Korean automobile sector during the upcoming phase of yen appreciation.

The Bank of Japan (BOJ) raised interest rates for the first time in 17 years at the monetary policy meeting held on the 19th of last month. However, contrary to market expectations, the yen is still showing weakness.

Hyunki Kang, a researcher at DB Financial Investment, explained, "From the BOJ's perspective, since they have just raised the policy rate, they will need a considerable period to observe the market's reaction." He added, "Market participants are also aware that the BOJ will take a long time to monitor policy changes, so the yen is currently trending weak."

Researcher Kang pointed out Japan's rising import prices and the possibility of a U.S. interest rate cut as key factors to watch. He analyzed, "A weaker yen leads to higher import prices in Japan," adding, "Recently, Japan's inflation rate has recorded the high 2% range year-over-year, which could cause quite serious problems."

Regarding the U.S. interest rate cut, Kang said, "With the growing possibility of a rate cut in June in the U.S., exchange rates among developed countries are influenced not by the 'interest rate differential' itself but by the 'direction of the interest rate differential.'" He forecasted, "The U.S. rate cut and the BOJ's continued rate hike stance will lead to yen appreciation in the future."

Kang explained that when the yen strengthens, it is necessary to consider changes in the price competitiveness of Japan's export industries. He noted, "From February 2016 until recently, while the BOJ maintained negative policy rates, the yen weakened and Toyota Motor's stock price rose by about 200%." He added, "It is important to watch for a potential yen appreciation and a subsequent stock price rebound in the Korean automobile sector."