As the yen plumbs new lows, some investors are pondering an almost unthinkable scenario in a region busy bolstering falling exchange rates — a series of competitive devaluations that starts a new Asian currency war.
Suspected intervention to drag the yen off a 34-year low against the dollar is already seen as unlikely to have a lasting effect if Japan continues alone, raising the prospect of another bout of weakness in the beleaguered currency. That could push competitive tensions with exporting neighbors South Korea and Taiwan to a peak — and heap pressure on China, where chatter is already growing about the potential for a yuan devaluation.
A destabilizing slump in the yen could be the trigger that forces Japan’s neighbors to take extreme action, goes the theory, even if their efforts to date have been to prop up currencies instead of capitulating and letting them slide. While a minority view and not one that suggests a repeat of the Asian financial crisis, it’s still gaining some traction in a scenario where a resurgent dollar stays stronger for longer.
With your current subscription plan you can comment on stories. However, before writing your first comment, please create a display name in the Profile section of your subscriber account page.