Yen rescue plan echoes Asian crisis playbook, warns ex-diplomat

Japan's recent efforts to support the yen are uncomfortably reminiscent of the Asian financial crisis, according to Naoyuki Shinohara, a former vice finance minister for international affairs. In an interview, Shinohara noted that Washington's suggestion to use dollar swap lines rather than sell US Treasuries to fund intervention evokes the late 1990s, when dollar liquidity was a critical concern across the region.

While Shinohara stressed that Japan is nowhere near Thailand's position during that crisis, he said the underlying dynamic feels similar. The US, Japan, and the IMF had provided dollar funding to Thailand back then to shore up its reserves.

Shinohara also argued that the joint Japan-US action on July 31 differs significantly from traditional coordinated interventions. Historically, such moves were built on a shared assessment among major economies and backed by G7 statements. He pointed out that no such process appears to have taken place this time, with no joint G7 statement issued.

Another unusual aspect, he said, is the near absence of central banks. Since messaging is the most powerful element of coordinated intervention, the lack of central bank involvement weakens the signal to markets. Shinohara interpreted US participation as a symbolic gesture urging Japan to address its policy stance, including faster rate hikes by the Bank of Japan.

He believes the BOJ likely sees a need to raise rates to at least 1.5% from the current 1% soon, though one or two hikes may not reverse the yen's downtrend. External factors, such as slower US growth or reduced Middle East tensions lowering oil import costs, could help support the currency.

Shinohara warned that a rapid depreciation of the yen must be avoided. "A country does not collapse because its currency gets stronger," he said. "It runs into trouble when its currency becomes too weak."