Asian currencies hit by yen crash, Asian financial crisis coming?

The recent dramatic fall in the Japanese yen, which has caused major Asian currencies to depreciate, has many people worried about a repeat of the 1998 Asian financial crisis.

The parallels with 1998 are striking, and there are worrying signs.

By the end of the trading day on April 20, the situation was still deteriorating sharply, with the yen falling towards the 160 mark.

Other major Asian currencies also lost ground, with the South Korean won falling below 1,400, the Vietnamese rupiah hitting a new high of 25,463, the Indonesian rupiah falling to 16,290, the Indian rupee reaching a high of 83.72 and the Malaysian ringgit at 4.79.

After a brief rebound, the yuan fell back again to hover around 7.24, although the decline has been restrained, but the short-term trend is relatively stable.

Meanwhile, the dollar index rose as high as 106.35.

The general depreciation of major Asian currencies, the strong US dollar across Asia, and the cooperation of international speculators and short-sellers are further contributing to the situation, which is indeed similar to the 1998 financial storm.

So what was the Asian financial crisis of 1998? What are the parallels with the current situation?

In short, the rise in the US dollar in 1994-95, followed by another hike of 25BP in March 1997, contributed to the crisis, the US dollar appreciated and international speculators seized the opportunity to short.

At that time, the exchange rates of Southeast Asian countries were destroyed, their currencies plummeted, triggering debt crises, and eventually the depreciation of assets accelerated, and the economic gains of many years were almost wiped out.

Many people may think that currency depreciation and asset liquidation are the business of the rich, not ordinary people.

However, this is not the case, and when disaster strikes, no one is spared.

At that time, many people in Southeast Asia fell into poverty overnight, and those who were once poor were left penniless overnight, many families were broken, and society was plunged into panic and turmoil.

For the moment, Asia's currencies are also bearing the brunt. Normally, the exchange rate is the first line of defense for a country's economy and assets, and once breached, international speculators and short-sellers can easily enter.

Today's Asia, especially under the strong radiation of China's economy, has become the cornerstone of China.

Especially in Southeast Asia, ASEAN is China's largest trading partner, an important base for China's manufacturing and entrepot trade, and has absorbed a large number of spillover effects of China's manufacturing industry.

If Southeast Asia is hit, China's massive investment in the region will also be hit hard, and the links between central and Southeast Asia will be disrupted.

So will history repeat itself this time?

Taken together, Asia has changed dramatically since then.

First, Asia is relatively stable under the current round of US dollar rate hikes, and currencies such as the Japanese yen and the Chinese yuan remain strong, which brings protection to the whole region.

Although the yen and the yuan did not follow the dollar in raising interest rates, in fact, the cheap currencies and foreign exchange of the two countries flowed to neighboring Asian countries in various forms, such as investment and loans.

So while higher dollar rates have led to a lack of liquidity in Asia, it has not yet reached the level of a crash.

Second, the structure of Asian economies has changed dramatically since the last crisis.

Back then, Asian countries were overleveraged, especially in dollars.

Today, most Asian countries have relatively low levels of external debt, and most have reasonable amounts of short-term debt and foreign exchange reserves.

In addition, the current inflow of foreign capital is mainly used for industrial investment, which is less affected by short-term interest rates.

Third, after the last crisis, Asian countries have now adjusted their exchange rate regimes to adopt floating exchange rates.

Now that Asian central banks no longer need to force currency intervention to maintain exchange rate stability, there is more room for policy manoeuvre.

Fourth, the current momentum of US dollar interest rate hikes and US dollar index gains has come to an end, and it is difficult to continue for a long time.

So while history sometimes repeats itself, it never simply repeats itself.

Clearly, times have changed, and while the current situation is similar to history, the subsequent story is likely to be different.