The abnormal phenomenon of "zero transactions" of Japanese government bonds has repeatedly occurred, indicating the market is not optimistic about Japan's adherence to the yield curve control policy. Comparatively speaking, the situation in South Korea is more serious though it is not exactly ideal in Japan. That being said, judging from the current situation, in the absence of capital flow constraints, whether a country closely follows the Fed's tightening policy or pursues the opposite easing policy, it cannot avoid the impact of international capital flows. However, this also has a more serious impact on the Japanese stock market. Japan, on the other hand, continues to adhere to easing policies and yield curve control. At the same time, it also has to start purchasing financial assets, hoping to maintain the stability of the capital market. South Korea has raised interest rates several times, and the policy interest rate (seven-day reverse repurchase) has reached 3%. As far as monetary policy is concerned, these two East Asian nations have adopted opposite policies to respond to the Fed's raising interest rates. Japan and South Korea have begun to intervene in the market, and the foreign exchange reserves of both countries have decreased by more than US$100 billion in the past two months, reaching about US$106.8 billion. The sharp depreciation of the US dollar has hit Japan and South Korea's weak macro economy, and the two governments have to use their foreign exchange reserves to rescue the market. Instead, the economy itself is dragged down by inflationary inputs from devaluation. In the short term, it is difficult for the manufacturing industry in the Asia-Pacific to obtain more export opportunities through currency devaluation. In addition, in the context of rising global inflation and the Fed hiking interest rates, foreign trade demand will also decline across the board. In this sense, the view that the devaluation of the currencies of the three countries to gain a competitive export advantage seems untenable. Is a "competitive devaluation" of a currency good for the economy? Will there be another new currency crisis in Asia? Can China survive a new round of "currency war"?
Yet, if the situation of the 1997 Asian financial crisis is taken into consideration, the impact of currency devaluation on capital flows and asset values, and the "currency war" brought about by the devaluation of currencies, this may in fact bring about a sharp rise in financial risks in Asia. Many believe currency devaluation will be beneficial to exports, which is conducive to long-term economic stability. As the three Asian countries share similar economic structures, most are on the main manufacturing output side. The exchange rates of the Chinese renminbi (with the offshore exchange rate as a reference), the Japanese yen, and the South Korean won have all depreciated significantly with the appreciation of the US dollar. With the Federal Reserve maintaining high-intensity rate hikes, the currencies of China, Japan, and South Korea, all major Asian economies, have been more or less affected to varying degrees, and are under increasing pressure of depreciation. South Korean won, Chinese yuan and Japanese yen notes are seen with US$100 bills in this picture illustration. REUTERS
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