Korea's yearly trade surplus this year is projected to outrun Japan's for the first time ever, thanks to the weak domestic currency and diversification of export markets, the government said yesterday.

The country's accumulated trade surplus from January to October touched $34.5 billion and will likely exceed $40 billion for the whole year, the Ministry of Knowledge Economy said.

Japan's total trade surplus, in comparison, hit merely $11 billion from January to September, it said, underscoring the likelihood that the figure will hover around $20 billion by the end of 2009.

"The boon can be attributed to favorable exchange rates, which have made local products more price competitive overseas, and the steady gains reaped by the improvement of product quality by Korean companies, which raised overall competitiveness," the ministry said.

Korea, commonly described as being "sandwiched" between two regional economic giants - China and Japan - has been racing to bolster its economic competitiveness and establish a niche.

Experts say Korean manufacturers have been diligent in raising the perception of domestic products abroad by strengthening product quality and design, as well as taking advantage of the opportunity for price competitiveness due to the weakened won against the U.S. dollar. Local companies have also been struggling to dispel the "Korea discount" complex by improving their credibility.

The Korean won stood at an average of 1,312.7 won against the greenback from January to September this year, compared with the average of 1,012.6 won during the same period last year.

The ministry said local goods also steadily increased market share in areas such as information-technology products and automobiles. It underlined that successful efforts by Korean companies to diversify exports markets have also helped to ease the shocks of the unprecedented global financial crisis. Industrialized economies like the United States and Europe have been more deeply affected by the global downturn, the ministry noted.

As a result, Korea's diversified markets have helped contain trade momentum compared to Japan's, which is oriented towards industrialized markets that suffered a heavy blow from the aftermath of the collapse of Lehman Brothers last year.

The ministry then warned that Asia's fourth-largest economy may not able to enjoy another record-high trade surplus in 2010 as the won is expected to strengthen against the greenback.