Wavering up to Yuan and Yen... "Concerns Grow Over Reappearance of Asian Financial Crisis"

Most Asian Countries Depend on Exports
Exchange Rate Risks Greater Than Interest Rates
Large-Scale Overseas Capital Outflows
Possible Full-Scale Crisis Expansion

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Concerns are rising that a financial crisis could reemerge in Asia as the aggressive monetary tightening in the United States continues to weaken both the Chinese yuan and the Japanese yen.

On the 25th (local time), Bloomberg reported that the sharp decline in the currencies of the two countries is fueling investor fear in emerging markets, prompting massive capital outflows.

Bloomberg explained, "China has been the largest trading partner of Southeast Asian countries for 13 consecutive years, and Japan, the world's third-largest economy, is a capital and credit exporter. If the collapse of the currencies of these two economic giants scares overseas funds and leads to large-scale capital flight, it could escalate into a full-fledged crisis."

Experts warned that since most Asian countries rely on exports, exchange rate risks pose a greater threat than interest rates.

Vishnu Barathan, Head of Strategy at Mizuho Bank in Singapore, said, "The weakness of the yen and yuan risks destabilizing currencies in trade and investment across Asia. We are already heading toward global financial crisis-level stress in some respects, and if losses continue to deepen, an Asian financial crisis will begin."

On the 26th, the yuan was trading at 7.1320 per dollar in the Chinese regional market. The yuan, which peaked at 6.30 per dollar in early March, has been declining since April due to the narrowing US-China interest rate gap and a slowdown in Chinese exports.

The yen exchange rate, which surged to 145.81 during trading on the 22nd, fell to 140.3 after the Bank of Japan (BOJ) began selling dollars and buying yen. Since the BOJ's intervention, the yen has remained around 143 per dollar.

Southeast Asian countries are also experiencing continuous declines in currency values due to interest rate hikes by major countries. India, for example, has injected nearly $100 billion over the past year to defend its currency value, but the rupee has fallen more than 8% against the dollar this year. Foreign exchange reserves have also sharply decreased. According to the Reserve Bank of India, as of the 16th, India's foreign exchange reserves stood at $545.7 billion, a significant drop from $642.45 billion in the same period last year. Thailand's baht has also fallen to its lowest level in 16 years.

British economist Jim O'Neill expressed concern that if the yen falls to 150 per dollar under these circumstances, turmoil comparable to the 1997 financial crisis could occur.

On the other hand, some argue that Asian countries have accumulated sufficient foreign exchange reserves, so a foreign exchange crisis like before will not occur. They point out that in 1997, Asian countries failed to respond effectively due to lack of experience with foreign exchange crises. However, experts caution that it is too early to be reassured as emerging countries' foreign exchange reserves are depleting too rapidly.

According to data compiled by Bloomberg, Thailand has experienced the largest decline in foreign exchange reserves relative to GDP, while India’s reserves have decreased by nine months’ worth of imports and Indonesia’s by six months’ worth.

Trang Thuy Le, Investment Strategist at Macquarie Capital in Hong Kong, pointed out, "The most vulnerable currencies are those of countries with small current account deficits, such as the Korean won, the Philippine peso, and the Thai baht. If both the yuan and yen fall, investors may withdraw funds from emerging markets to buy dollars."

This content was produced with the assistance of AI translation services.