The Yen Bloc?

pms laflame at mindspring.com
Wed Oct 14 17:44:41 PDT 1998


greetings-

Wanted to share more STATFOR stuff before my free time expires. Please note where they speak of Japan considering the US lowering of interest rates as an attack on Japan's economy(rising yen). My question is: Does this mean that the whole idea of looser money stimulateing consumption and perpetuateing us as the "buyer of last resort" is crap? Or is this analysis crap?


>RED ALERT
>
>Mahathir's Surprise Visit to Tokyo Redefines Region
>
>Malaysian Prime Minister Mahathir Mohamad will go to Tokyo on
>Thursday for a 5-day visit. In addition to meeting with the
>powerful Keidanren (Federation of Economic Associations),
>Mahathir will attend receptions hosted by Japan's Prime Minister
>Obuchi and the Emperor. Additionally, Keidanren voted to endorse
>Malaysia's currency controls. Agence France Presse quoted
>Hiroshi Maeda, head of Keidanren's Asia Pacific division, who is
>on a visit to Malaysia, as saying, "We in Japan strongly support
>the currency control measures adopted by the Malaysian
>government." He went on to say, "Stabilization of the exchange
>rate is extremely important. In fact, it is particularly more
>important for our industries as we are more export oriented."
>The announcement of Mahathir's visit was made, according to the
>Malaysian Embassy in Washington, on Tuesday. There are
>additional reports that Tokyo is considering an additional $2.7
>billion in aid to Malaysia, to be announced at the APEC
>conference.
>
>These events are both startling and extremely important. We have
>been chronicling the alignment within ASEAN of the Philippines,
>Indonesia, and to some extent Singapore, against Malaysia. More
>specifically, there has been criticism in all three countries
>concerning the treatment of Anwar Ibrahim. The subtext of this
>criticism was the Singapore-Philippine position against currency
>controls, which coincided with the dominant theme set at the
>World Economic Forum meeting in Singapore this week. Indeed,
>over the last week, the tide seemed to be running against
>currency controls and in favor of allowing free market forces and
>cuts in interest rates work to solve the problem. In short, the
>U.S. position appeared to be carrying the day.
>
>Suddenly, Japan has jumped into the fray on Malaysia's side.
>First, it invites Malaysia's increasingly isolated Prime Minister
>to Tokyo, radically increasing the likelihood of his survival.
>In so doing, Tokyo takes a slap at Indonesia, Philippines and, by
>far the most important, Singapore. Second, it has the
>semi-official Keidanren explicitly go on record in favor of
>currency controls, implying that it is the right solution for
>them as well. Third, rumors are floating about a generous slug
>of money to Malaysia as a reward for imposing currency controls.
>
>The Asian dynamic changed overnight. There is no question at
>this point but that Japan expects to impose some sort of currency
>controls of its own. Indeed, it seems to us that it intends to
>propose a regional system of currency controls, at least
>implementing an Asian Monetary Fund and, at most, creating an
>alternative reserve currency to the dollar--either the Yen or the
>Asian equivalent of the Eurodollar. The sudden decision to
>invite Mahathir is a clear signal that Japan does not want
>Malaysia marginalized, and further, that it regards Mahathir's
>policies as not only defensible but praiseworthy.
>
>Tokyo has clearly made a policy decision to define its own
>strategy independent of, and indeed, opposed to, the United
>States. We believe that that decision was triggered by two
>things: the failure of the United States to provide any
>meaningful support to Japan either during Prime Minister Obuchi's
>visit to the United States or during the G-7 talks in general.
>Second, _the decision by the United States to reduce interest
>rates that resulted in the yen skyrocketing, convinced Tokyo that
>Washington was willing to throw Japan to the wolves in order to
>save its own economy from a modest downturn.
>The result was this extraordinary invitation to Mahathir. As
>long-time readers know, we regard Mahathir as a harbinger of
>things to come. Mahathir's position that has really been in
>place since 1990 is that in the long run dependence on the West,
>in particular the United States left Asia vulnerable to shifts in
>U.S. policy. Mahathir focused on Asia's dependency on the dollar
>as a major problem long before the 1997 crisis. Indeed, he has
>been active in trying to recruit Japan to his views. The
>Japanese have tended to avoid commitments to him while remaining
>interestingly cordial. Suddenly, the cordiality has turned into
>an apparent embrace. The marginalized Mahathir has become
>Japan's special friend.
>
>This throws Asia into a new crisis. First, embracing currency
>controls means a sharp break between Tokyo and Washington. For
>the first time since the oil shocks, Tokyo is now making no
>pretense of coordinating with the United States. Endorsing
>Mahathir and endorsing currency controls is also a challenge to
>U.S. leadership. Japan is clearly trying to show the United
>States the price it will have to pay for its unwillingness to
>help Japan. If Japan is going to be the one to pump money into
>its banks, it intends to control the inflationary pressures as
>well as potential capital flight with currency controls. If that
>means the end of Bretton Woods, then so be it. Obviously, the
>United States is being given time to mend its ways. What Japan
>is doing is putting the responsibility for saving Bretton Woods
>on the Americans.
>
>The second crisis is among the nations that were lining up
>against Mahathir. The most important of these is, of course,
>Singapore. Singapore is completely committed to a free trade
>regime in goods and currency. Indonesia could quickly tilt in
>favor of controls while the Philippines is of little consequence
>in this debate. With its northern neighbor, Japan's good friend
>and Japan itself heading for currency controls, how will
>Singapore find its way to a solution? The pressure on Singapore
>to participate in regional controls will be extremely heavy,
>because without Singapore, one of the most important regional
>currencies and strongest economies will be left out. But joining
>the Asian bloc runs completely counter to Singapore's grand
>strategy of being a bastion of free trade.
>
>Suddenly, the stakes at November's APEC meeting are surging.
>This is shaping into a showdown. We do not expect any comment
>from Singapore on the meeting in Tokyo. We will be very
>interested in Washington's response.
>
>_________________________________________________________________
>
>THE WORLD AND ASIA
>
>Possible Oil Price War Threatens Asian Economies
>



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