As Japan slips into recession, South Korea is keeping an increasingly wary eye on its export rival's free-falling currency, which is honing a lasting competitive edge over Korean products in a number of key markets.
The massive fiscal stimulus and flood of easy money unleashed by "Abenomics" has sent the Japanese yen plunging to multi-year lows against a basket of major currencies.
In the past two years, the yen has lost around 33 percent of its value against the US dollar and 35 percent against the Korean won -- a depreciation that has triggered public expressions of concern in Seoul from industrialists, politicians and monetary policy-setters.
A weaker yen makes Japanese exports cheaper, which impacts countries such as South Korea that are direct competitors in a number of key sectors.
Bank of Korea (BOK) governor Lee Ju-Yeol promised earlier this month that it would not "sit idle" despite the limited tools it can deploy to counter the falling yen.
At its monthly monetary meeting on November 18, the BOK kept its key interest rate unchanged at 2.0 percent, but Lee underlined the "worrisome situation" regarding the Japanese currency.
If Japanese companies up the ante still further by slashing export prices, then South Korean companies in the auto, steel, machinery and shipbuilding sectors are "bound to suffer", Lee said.
South Korea's vast dollar reserves allow the central bank to intervene in the currency market to curb any volatile swings in the won-dollar rate.
But the won-yen exchange rate is calculated not by direct trade but by their relative value against the greenback, leaving the BOK little room to manoeuvre.
The BOK can, in theory, sell the won heavily to weaken it against the dollar and eventually the yen, but that causes problems for businesses importing raw materials.
"And a weak won will lead foreign investors to pull money out of the stock and bond markets, making them more unstable," said Shin Se-Don, economics professor at Seoul's Sookmyung University.
- Auto woes -
The advantage Japanese exports gain from the falling yen makes life particularly difficult for South Korean companies such as Hyundai, the world's fifth largest automaker.
"The biggest risk for us now is eroding price competitiveness due to the weak yen," Hyundai's chief financial officer Lee Won-Hee said last month after the firm announced a 30 percent plunge in third-quarter net profit.
For years, Hyundai Motor and its smaller affiliate Kia had eaten into the overseas market share of Japanese giants like Honda and Toyota.
Between 2005 and 2012 they almost doubled their combined US market share to 8.7 percent, but that fell back to 8.1 percent last year.
In October, the share had further fallen to 7.4 percent -- the lowest so far this year.
Japanese carmakers, meanwhile, have hammered home the advantage of the weaker yen by boosting sales incentives to new buyers in the United States.
Lee Keun-Tae, an economist at LG Economic Research Institute, said many Japanese firms -- unconvinced by Tokyo's stimulus campaign -- were still holding off on any major cut to export prices.
But he said the Bank of Japan's surprise announcement last month to further ramp up monetary easing may convert the sceptics.
"If these companies start slashing prices in earnest, it's going to be a nightmare for many Korean manufacturers," Lee said.
For South Korean firms it is a double blow at a time when they are already facing increased competition from China.
"Korean exporters are no match for Chinese firms in price competitiveness, and now they are being cornered by Japan, too," Lee said.
"So they're being sandwiched harder than ever."
- Shipbuilders feel heat -
South Korean shipbuilders, who had been racing neck and neck with China to top the list of global orders, are also feeling the heat.
In April, they were beaten into third place by their Japanese competitors for the first time in 15 months, according to data from the industry tracker Clarkson, which also had Japan ahead in June and September.
The portfolios of South Korean and Japanese shipbuilders overlap significantly in the merchant ships and liquefied natural gas (LNG) carrier sector.
According to the Korea International Trade Association, more than half of all South Korean exports are in direct competition with made-in-Japan goods.
Concerns about the yen are not helped by the fact that South Korea-Japan diplomatic relations are currently at their lowest ebb for years, dogged by historical disputes that show no sign of waning.
During the recent G20 summit, South Korean President Park Geun-Hye offered a thinly veiled critique of Prime Minister Shinzo Abe's efforts to reinvigorate Japan's flagging economy.
Monetary policies by advanced nations only in consideration of their own domestic condition could spark "negative spillover effects", Park said.
"I could no longer see the situation go on like this so I was determined to speak out," she later told reporters.