Chapter 3. Internationalization as Insulation: Dilemmas of the Yen

The Asian financial crisis of 1997-98 was a shock to Japan and the world. The rapidity with which fast-growing economies were hit by currency attacks and then economic chaos, the spread of the crisis first among disparate regional economies and then as far as Brazil and Russia, and the seeming inability (or perhaps unwillingness) of the United States and the International Monetary Fund (IMF) to fix the problem left a huge impression around the globe. The size and rapidity of the capital movements appeared to make for a qualitatively different kind of currency crisis from those of previous decades, and presented global finance with a serious new challenge. Unlike those in most other countries, however, policy makers in Japan saw themselves as being in a position to reduce about the possibility of a repeat performance—particularly a repeat performance that would have a direct effect upon Japan itself.