And if Japan heads into a precipitous decline, it would be all but impossible to prevent the United States from catching the Asian flu. Exports to virtually all the Asian markets would slow, and the effects would be felt from Wall Street to the factory floors of companies that have thrived in America's export boom. It is for all those reasons that inside the Treasury Department, where Asia's woes have become as large a preoccupation as Iraq is in the Pentagon, few doubt that South Korea's troubles raise the Asian financial crisis to a new level. South Korea is the world's 11th-largest economy, roughly the size of Indonesia's, Malaysia's and Thailand's rolled into one. The Japanese institutions, already teetering, are forced into bankruptcy.
Japanese exports fall.
And that in turn, would lead to the failure of more Japanese banks, which have long been permitted by Japanese authorities to count their unrealized stock market gains as capital. With the Nikkei index that low, there would be no gains, and, thus, far less capital. The banks would have to merge or be permitted to liquidate, as Japan's 10th-largest bank, the Hokkaido Takushoku Bank, did earlier this week. Japan's pain, of course, would quickly become America's. The trade deficit with Japan would soar, and Japanese imports, made less expensive by a declining yen, would displace American products.