Analysis: Weakening Yen Exerts Limited Impact on HK Exports

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Last updated at: (Beijing Time) Friday, December 28, 2001

Analysis: Weakening Yen Exerts Limited Impact on HK Exports

Yen weakness will have a limited impact on Hong Kong's exports though it may reduce the scope for export-led recovery, analysts here predicted on Thursday.

"We would not rule out the possibility that the yen will fall to 140 yen to one U.S. dollar next year, but Japan takes about 6 percent of overseas sales, or 10 percent including exports to Taiwan and Korea, where exchange rates are mainly affected by the yen," Pu Yonghao, senior market economist from Nomura International (Hong Kong) Limited, told Xinhua.

The economist also warned that a weakening yen will lead to an increase in the trade-weighted effective rate of the Hong Kong dollar, adding to deflationary pressure. "We see deflation continuing in Hong Kong next year," he added.

Asked about the impact of weakening yen on Hong Kong, Stephen Ip, acting financial secretary for the Hong Kong Special Administrative Region, commented that concerns over weakening yen to trigger a new financial crisis is understandable, but the present economic situation in Asia is quite different from that in 1997.

Ip said Hong Kong's long-term economic is good and the exchange rate of Hong Kong dollar is more stable. What is most important to Hong Kong for the time being is to continue to improve its competitiveness and lower the costs, Ip added.

Economists here believed that the lower yen effectively makes Japanese products cheaper when exported, and it also makes foreign goods imported in Japan more expensive and less competitive.

The Japanese yen dropped another one percent Thursday morning to a new low of 131.7 yen against one U.S. dollars. The economists believed that this means Japanese visitors could be less likely to bless Hong Kong with extra tourism dollars as they are hit by both a stagnant domestic economy and the impact of a weaker currency.

Speaking of Hong Kong's long-term outlook, Pu said a strong Chinese economy, together with increasing co-operation between Hong Kong and the mainland, should lend some support to the Hong Kong economy in the longer term, adding that one such benefit is likely to be a further increase in the number of tourists from the mainland.

"Overall, we expect economic growth in Hong Kong will recover to 5.2 percent in 2003, on a recovery of the U.S. economy and on year-on-year base effects," Pu said.

However, in short term, on weaker consumption, falling yen, and reduced scope of public spending policy, Pu said he downgraded Hong Kong's GDP growth to 0.9 percent from 2.3 percent for 2002.

Recent retail sales data suggest consumer spending will recover in fairly subdued fashion next year. In volume terms, retail sales fell 3.7 percent in October, compared with an increase of 6 percent in June. Also dampening the picture, the unemployment rate in November stood at a 19-month high of 5.8 percent, compared with 4.5 percent in June.

Joe Lo, a senior Salomon Smith Barney analyst, was also optimistic about Hong Kong's long-term growth potential. "A solid U.S. recovery next year should lift Hong Kong out of recession," the analyst said.

"We are confident Hong Kong can develop its niches and face the challenges after China's WTO entry," Lo said, forecasting that Hong Kong growth potential in the next five years is likely to be 3 percent to 4 percent.