Global credit rating agency Fitch Ratings predicted that Japan’s export restrictions on core materials for semiconductors and displays bound for Korea could be self-inflicting on the Japanese industry.

In a report released on Monday, Fitch said Japanese companies have “much to lose” if the export controls continue because South Korean firms will try to “seek alternative suppliers to replace Japanese ones after a period of adjustment.”

Although the restrictions would hurt South Korean chip and display makers including Samsung Electronics, LG Electronics and SK Hynix, the agency said it expected “Japanese companies that supply these materials and those that purchase memory chips and displays are also likely to suffer.”

“Prolonged trade conflict between the two countries could backfire and hurt Japanese companies over the long term,” it said, adding that some of the Japanese exporters manufacture the materials from factories in countries such as Taiwan, Singapore and Korea. The measures from the Japanese government would threaten not only Korean companies, but also firms from many other markets that take part in the global technology ecosystem, according to Fitch.

Since July 4, Japan has tightened curbs on shipments to Korea of three high-tech materials – fluorinated polyamides, photoresists and hydrogen fluoride – that are used in manufacturing displays and chips. Seoul believes the measure is part of Tokyo’s retaliatory actions against the recent Korean court rulings ordering Japanese companies to compensate wartime forced laborers.

Meanwhile, global investment bank Goldman Sachs said in a report on Monday that South Korea’s gross domestic product (GDP) would fall by 0.4 percent and current account surplus would retreat by $10 billion, if the nation’s semiconductor output drops 10 percent due to the Japan’s export controls.

Potential disruptions to chip production would pose serious downside risks to Korea’s GDP and current account balance, Goldman Sachs expected, adding that the three materials restricted by Japan’s latest shipment controls are key materials for semiconductors and organic light-emitting diode (OLED) displays.

By Chung Seok-hwan and Choi Mira

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