Home » Politics & Society » East Asian Politics » Asia's Financial Crisis

Asia's Financial Crisis

© Jason Gottlieb

The scariest thing about this scenario is that Korea is, in many ways, structurally similar to Japan. Japan's corporate groupings, called keiretsu, are also dependent on their central bank and securities firms for their financing. And Japan is also mired in a currency free-fall and a recession. The yen dropped from a high of 78 to the dollar two years ago to 128 today. The Tokyo Stock Exchange is down 25.2 percent from a year ago -- the only major industrialized nation to have gone down in the past year's global bull market. Recently, Sanyo Securities, Hokkaido Takushoku Bank (Japan's tenth largest), and a major second-tier regional bank, Tokuyo City Bank, have also failed. So with the centerpiece financial institutions failing, they cannot support their corporate partners, which puts a whole bunch of smaller companies in trouble.

Is the so-called "Asian currency crisis" affecting South Korea? Definitely. But is it, or South Korea's woes, affecting Japan? Hashimoto insists the answer is no. Russell Jones, chief economist at Lehman Brothers' Tokyo branch, agrees, saying "It's a totally different ballpark." For one, he says, Japan does not depend on inflows of capital. Its trouble were not caused by governmental account deficits, but deficits at individual banks. Additionally, Japan has foreign reserves of nearly $230 billion, which it can use to prop up the yen if needed.

As noted with the Korean example, however, doing so only weakens the yen further. And given that Japan is South Korea's largest trading partner (comprising 24 percent of imports and 14 percent of exports), a hard-hitting recession in Korea is bound to affect Japan, if only in terms of psychology. And if Japan is affected, Asia is affected. Just as Japanese and Korean financial institutions are having difficulty propping up their junior corporate partners, Japan and Korea themselves will have difficulty propping up junior economic partners like Thailand, the Philippines and Malaysia in their current crises.

Furthermore, if Japan is affected, the world is affected too. With a falling yen, Japanese exports increase, which normally boosts the economy. However, just as Britain's recently high-flying pound has somehow not hurt its strong export sector, Japanese recent export increases are somehow not boosting its economy. In fact, the only result of Japan's increase in exports has been to re-ignite its chronic trade surplus with the U.S. Recently, Clinton was reported as telling Hashimoto, "If Japan's trade surplus with the United States shows a large increase, it would become a political problem." That is certainly true, and it is the final step in a demonstration of how a collapse of the Thai baht can, in the end, affect the political relations of the world's two largest economies. In the end, the economic is the political.