Japan's foreign direct investment (FDI) in South Korea hit a record high in 2012 despite the fast depreciation of the yen currency in the fourth quarter, data showed Tuesday.

The amount of Japan's FDI in South Korea reached a record US$4.54 billion last year, doubling from $2.3 billion a year earlier, according to the data by the Financial Supervisory Service (FSS). The figure edged up to $2.29 billion in 2011 from $2.08 billion won a year earlier.

In the last quarter of 2012, Japan's FDI surged 44 percent on-year to $1.24 billion, even though the yen began to rapidly fall due to the Tokyo government's push for aggressive monetary easing.

The Japanese yen, which has stayed strong against major global currencies, began to quickly tumble to the Korean won from the second half, falling about 20 percent for all of last year.

Its fast depreciation has become a bugbear to the Korean economy, Asia's fourth-largest, as it is feared to hurt competitiveness and profitability of local exporters in the offshore market.

Analysts said Japan's FDI to Korea remained firm last year nonetheless, because the yen had stayed strong against the won for most of the year, which offered Japanese investors attractive costs to seek setting up a firm or buying shares here.

The brisk growth of local IT companies, including tech giant Samsung Electronics Co., also helped spur more Japanese investment in parts suppliers, they added.

The Japanese portion of total FDI in South Korea topped other countries with 27.9 percent as of the end of December last year, followed by the United States and Hong Kong, the data showed.

Meanwhile, Japanese investors' holdings of local equities and bonds declined, largely because they scurried to shift their investment to the Tokyo stock market, which spiked after the decision by the Bank of Japan on the monetary easing, analysts said.

Their value of stock holdings in Seoul fell by 700 billion won ($647.1 million) between August 2012 and January this year, coming to 6.2 trillion won (US$5.73 billion) as of Feb. 7. The corresponding figure for bonds fell by 282 billion won to 439.4 billion won in the same period, the data showed.

But analysts did not rule out the possibility of Japanese FDI in South Korea shrinking should the yen continue to weaken against the won this year, as it will inflict exchange rate losses on Japanese investors.

Source Text

Source: Yonhap News (Feb. 19, 2013)