Anxiety over the “second forex crisis” is brewing in Asia for the first time in 25 years. This is because the currency value of China and Japan, the two main pillars of the region’s economy, is plummeting. Bloomberg reported on the 25th (local time) that if the yuan and yen continue to fall, the forex crisis in 1997 could accelerate capital’s departure from Asia.
On the 26th, the People’s Bank of China announced the yuan’s exchange rate against the dollar at 7.0298 yuan, up 0.0378 from the previous trading day. The “poch” phenomenon occurred in which the value of the yuan fell below the “1 dollar = 7 yuan,” which is considered a psychological support line. It is the first time in two years and two months that Poch has appeared since July 2020. The yen’s value also plunged to its lowest level since August 1999, falling to 145.9 yen per dollar during the day on the 22nd. This is due to the dollar’s super strength due to the U.S. intensive monetary tightening policy.
If the yuan and yen continue to plunge, there could be a backlash in the Asian market. It is because of the weight of the two currencies. According to US asset management company BNY Melon, the yuan accounts for more than a quarter of the Asian Monetary Bureau index. The yen, the world’s third most traded currency, has a major impact on emerging currencies. The correlation index between the yen and emerging currencies picked by Morgan Stanley Capital International (MSCI) was 0.9 last week, the highest since 2015.
In this situation, if the value of the yuan and the yen falls together, a rapid capital outflow crisis could occur in Asian forex markets.