The yen and the yuan are synchronized with the currencies of neighboring countries… Global capital outflow
According to Bloomberg News on the 26th, there is concern that the Asian financial crisis could occur as in 1997 as the Japanese yen and Chinese yuan, the two most important currencies in Asia, collapsed due to the super strength of the dollar, which has emerged as the “king dollar”. The Korean won was ranked as one of the weakest Asian currencies.
Recently, the yen and yuan have been depreciating against the dollar. This is because, while the US Federal Reserve (Fed) raised its key interest rate by 3 percentage points five times this year, the interest rate gap widened as the central banks of Japan and China maintained ultra-low interest rates or implemented stimulus-boosting monetary policies. . According to Bloomberg, the yen-dollar exchange rate has risen 24.922% this year and the yuan-dollar exchange rate has risen 12.151% in China.
As a result, Bloomberg diagnosed that it is making it difficult for Asian countries to inject their foreign exchange reserves to minimize the damage to the ‘king dollar’. China has been the largest trading partner of Southeast Asian countries for the past 13 years, and Japan is the world’s third largest economy and exporter of capital and credit. If the currencies of these two countries plummet, global funds are likely to withdraw large amounts of capital across Asia.
In addition, the ripple effect is getting bigger as the yen, the yuan, and the currencies of other Asian countries are moving in the same direction recently. Vishnu Bharatan, head of economic strategy at Japan’s Mizuho Bank, told Bloomberg, “The weak yuan and yen pose a risk of destabilizing the currency in relation to Asian trade and investment.”
Jim O’Neill, former chief economist at Goldman Sachs, also said, “In the case of the yen, if certain psychological resistance levels such as ‘150 yen per dollar’ are breached, it could cause chaos on the level of the 1997 Asian financial crisis.” Of course, fluctuations in the value of the yen and yuan do not necessarily lead to a financial crisis.
Since the financial crisis in the late 1990s, Asian countries have greatly increased their foreign exchange reserves.
Nonetheless, Zhang Thuy Le, an analyst at Macquarie Capital Australia, said, “The weakest currencies are those with current account deficits, such as the Korean won, the Philippine peso and the Thai baht.”