It also led to risky imbalances. One was allowing an already huge US trade imbalance to widen. Another was attracting mountains of capital from Japan by way of the so-called ``yen-carry trade.'' Negligible interest rates in Japan had investors borrowing cheaply in yen and reinvesting the money in higher-returning assets like US Treasuries. Many still employ the trade.
Asians would love to see the dollar return to its mid-1990s heights. Yet efforts to boost it are leading to new asset bubbles.
The Bank of Japan alone sold a record ?20.1 trillion(US$198 billion) last year, buying US Treasuries with the proceeds. It pushed some US rates down to Japan-like levels -- US two-year notes now yield 1.60 percent.
The biggest irony is that the US could win either way at Asia's expense. If Asia lets the dollar drop, US exports and growth will get a boost and the current account bubble will narrow. If Asia continues boosting the dollar and buying Treasuries, US interest rates stay low and the US can fund ever-bigger deficits.
The former outcome would be better for Asia. While it bristles at the idea of the world's largest economy devaluing its way to prosperity, Asia's fortunes are closely tied to the US If US growth booms and consumers buy more Asian goods, wouldn't it be worth the short-term pain of stronger local currencies?
It's an end-justifies-the-means situation for Asia. The region's preoccupation with weak currencies makes little sense in the short run and even less in the long run.
All the more reason for Asia to reconsider its tug of war with Washington.
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