Worries grow over weaker yen, yuan
The Japanese yen and the Chinese yuan have remained weak against the U.S. dollar, deepening concerns about capital outflows from Asia and raising the specter of a region-wide financial crisis. The falling value of the currencies of the two economic giants has also put downward pressure on other Asian currencies, including the Korean won, amid the dollar's strength.
It seems inevitable for Asian currencies to lose ground further against the greenback as the U.S. Federal Reserve is expected to continue its aggressive monetary tightening. The direct cause of the weakness of the yen and the yuan was the Fed's hawkish move to raise its key interest rates to tame inflation.
The Chinese yuan has dropped around 12 percent against the dollar so far this year. The offshore yuan briefly plunged to a record low of 7.2790 per dollar Thursday. The slide also reflected a gloomy outlook for the Chinese economy which grew 0.4 percent year-on-year in the second quarter, far lower than 4.8 percent in the first quarter. The world's second-largest economy is feared to suffer a downturn amid a global economic slump.
The situation is more serious with the Japanese yen. It has lost about 30 percent of its value compared to the U.S. currency since the start of this year. It tumbled below the psychologically important 150 level against the dollar Thursday, hitting a 32-year low. Some pessimists warn that the yen's further depreciation might bring about what is reminiscent of the 1997-98 Asian financial crisis.
The unprecedented financial meltdown started with a plunge in the value of the Thai baht, which prompted investors to sell off their bond and stock holdings en masse. South Korea was forced to go cap in hand to the International Monetary Fund (IMF) for a massive rescue package. No one wants to see the nightmarish consequences of the turmoil again.
The problem with Japan is that its government has continued to make the yen weak against the dollar to help maintain the price competitiveness of the country's products in global markets. So Japan has kept its benchmark interest rate at near zero for too long. It has made no efforts to keep up with the U.S. Fed's aggressive interest rate hikes. It appears to be too late for the Japanese central bank to move toward monetary tightening. Japan's national debt is equivalent to 250 percent of GDP, which makes it more difficult to raise interest rates. Its trade deficit has continued to snowball due to the higher global prices of energy and raw materials.
South Korean policymakers need to heed the warning signs of an Asian economic crisis. The country has suffered a trade shortfall for six months in a row. Its current account returned to a deficit in August. The Korean won is on a downward march against the dollar. In this situation, the Yoon Suk-yeol administration should pull out all the stops to avert looming economic woes by regaining fiscal health, reducing the trade deficit, and stabilizing the won-dollar exchange rate.
The Japanese yen and the Chinese yuan have remained weak against the U.S. dollar, deepening concerns about capital outflows from Asia and raising the specter of a region-wide financial crisis. The falling value of the currencies of the two economic giants has also put downward pressure on other Asian currencies, including the Korean won, amid the dollar's strength.
It seems inevitable for Asian currencies to lose ground further against the greenback as the U.S. Federal Reserve is expected to continue its aggressive monetary tightening. The direct cause of the weakness of the yen and the yuan was the Fed's hawkish move to raise its key interest rates to tame inflation.
The Chinese yuan has dropped around 12 percent against the dollar so far this year. The offshore yuan briefly plunged to a record low of 7.2790 per dollar Thursday. The slide also reflected a gloomy outlook for the Chinese economy which grew 0.4 percent year-on-year in the second quarter, far lower than 4.8 percent in the first quarter. The world's second-largest economy is feared to suffer a downturn amid a global economic slump.
The situation is more serious with the Japanese yen. It has lost about 30 percent of its value compared to the U.S. currency since the start of this year. It tumbled below the psychologically important 150 level against the dollar Thursday, hitting a 32-year low. Some pessimists warn that the yen's further depreciation might bring about what is reminiscent of the 1997-98 Asian financial crisis.
The unprecedented financial meltdown started with a plunge in the value of the Thai baht, which prompted investors to sell off their bond and stock holdings en masse. South Korea was forced to go cap in hand to the International Monetary Fund (IMF) for a massive rescue package. No one wants to see the nightmarish consequences of the turmoil again.
The problem with Japan is that its government has continued to make the yen weak against the dollar to help maintain the price competitiveness of the country's products in global markets. So Japan has kept its benchmark interest rate at near zero for too long. It has made no efforts to keep up with the U.S. Fed's aggressive interest rate hikes. It appears to be too late for the Japanese central bank to move toward monetary tightening. Japan's national debt is equivalent to 250 percent of GDP, which makes it more difficult to raise interest rates. Its trade deficit has continued to snowball due to the higher global prices of energy and raw materials.
South Korean policymakers need to heed the warning signs of an Asian economic crisis. The country has suffered a trade shortfall for six months in a row. Its current account returned to a deficit in August. The Korean won is on a downward march against the dollar. In this situation, the Yoon Suk-yeol administration should pull out all the stops to avert looming economic woes by regaining fiscal health, reducing the trade deficit, and stabilizing the won-dollar exchange rate.
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