“Japan’s Regional Turn to Stabilize the Yen”
William W. Grimes
The regional economic architecture of East Asia is changing rapidly. Until
recently, East Asia was notable for its lack of formal institutions to support economic
integration, even as de facto integration among private-sector actors was moving forward.
In the aftermath of the Asian Financial Crisis (AFC) of 1997-98, however, regional
economic efforts have burgeoned. In finance, East Asian states have sought to make their
economies less vulnerable to global capital by transforming the regional financial
architecture. Though still limited in impact, these efforts have been comprehensive in
nature, including provisions for emergency liquidity provision (Asian Monetary Fund
(AMF) proposal, New Miyazawa Initiative, and Chiang Mai Initiative (CMI)),
development of regional bond markets, and discussion of currency management.
Japan has been a leader throughout the process. Importantly, these efforts
represent a fundamental shift in Japan’s exchange rate policies, which had long focused
exclusively on the yen-dollar exchange rate. The CMI seeks partly to limit the influence
of the IMF and United States on East Asian economic policies. In the CMI, Japan’s vast
foreign exchange reserves, hitherto a sign of vulnerability to US economic and political
pressure, provide leverage to help stabilize its external economic environment. Bond
market initiatives seek to reduce East Asian economies’ vulnerability to hot money flows.
Meanwhile, Japan’s case for currency basket systems seeks to reduce volatility of
regional currencies against the yen, thus reducing the need to manage the yen against the
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This is a draft, and should not be distributed or cited without explicit permission of the
author. All comments, criticisms, and suggestions are welcomed. Please direct
correspondence to the author at Department of International Relations, Boston
University, 152 Bay State Rd, (617) 353-9420, (617) 353-9290 (fax), ## email not listed ##.
I would like to thank Min Ye, Yong Wook Lee, Barbara Stallings, Saori Katada, and the
other participants of the conference on “The Emergence of East Asian Community:
Material and Ideational Foundations,” Watson Institute for International Studies, Brown
University, June 3, 2006, for comments on an earlier draft.
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