Japan’s interest rate hike hits local stock market

Overall economy will not feel adverse effects, experts say

Japan's move to end years of its “zero interest rate” policy would not have significant impact on the South Korean economy overall, market analysts said, but is feared to have initial adverse effects on the stock market and other financial markets here.

On Friday, the Bank of Japan decided to raise its key overnight call rate to 0.25 percent from the zero percent maintained for more than five years, in an apparent sign that its economy has finally emerged from decades of deflation.

Some market watchers voice concerns that the rate hike could have a negative impact on the local stock market by prompting foreign funds out of South Korea as they seek high profits in Japan.

The local stock market reacted negatively. The KOSPI index fell 2.3 percent to close at 1,255.13 after falling by nearly 3 percent, while the tech-heavy KOSDAQ dropped 2.0 percent to 559.66.

The Ministry of Finance and Economy, however, said that the impact would not be significant, adding that the rate hike could “push some foreign funds out of South Korea, which would affect the local stock market, but it would also have a positive impact on the local forex market.”

A more daunting challenge for the South Korean economy is the rise in energy prices, not Japan's monetary policy, another expert said.

“Japan's interest rate hike is not big enough to affect our economy immediately. What we have to brace for is the yen's appreciation coupled with higher crude oil prices,” said Lee Hyun-seok, executive official of the Korean Chamber of Commerce and Industry, a business lobbying group.

For many exporters, the rate hike in the neighboring country is welcome news, as they see it leading to the yen's appreciation, thus boosting the price competitiveness of South Korean exports at a time when domestic companies are competing with Japanese rivals in almost every area.