A year later, the Bank of Japan cut rates and, with the help of the U.S. Federal Reserve, intervened in the currency markets to rein in the yen. Export growth in Asia went off a cliff and set the stage for a currency crisis that swept the region with damaging impact in 1997. Now, here we are in 2001. The Japanese economy is struggling, and Tokyo authorities are desperate. The country's monster deficits are constraining government spending.
Interest rates are virtually at near-zero levels.
And the only relief in sight would be to orchestrate a massive bout of yen devaluation. Last year, of course, the U.S. economy sucked in Asian imports, particularly high-tech gadgets, so it didn't much matter. It matters greatly this year, given the distress signals coming from the U.S. economy. Export declines started surfacing in Singapore, Malaysia, and Thailand over the past two months. With Japan and the U.S. markets weak, these economies will surely take a hit, but with any luck it won't be on the same scale as in 1997.