Japan's Yen Rescue Echoes Asian Financial Crisis, Says Former Diplomat

Japan's latest effort to prop up the yen has sparked memories of the Asian financial crisis in the late 1990s, according to Naoyuki Shinohara, a former top currency diplomat. The operation bears little resemblance to traditional coordinated interventions, with Washington joining Tokyo's efforts to arrest yen declines without a joint statement from the G7 advanced nations.

Shinohara, who served as the IMF's deputy managing director after a stint as Japan's vice finance minister for international affairs, noted that access to dollar liquidity became a critical issue across the region during the Asian financial crisis. In contrast, the current situation is not as severe, with the US Treasury Secretary encouraging Japan to use dollar swap lines rather than sell US Treasuries.

The joint Japan-US action on July 31 was unusual due to the near absence of central banks and a lack of messaging from these institutions, which are typically involved in coordinated interventions. Without their participation, Shinohara said that 'messaging is the most important element' and without it, the message is not very powerful.