Saturday, June 13, 2009

The Debts of the Lenders: America's Pacific Allies Part 2

I haven't been posting as much b/c of a busier academic life. Bar preparation is a pain the ass. Anyway, I was perusing the newswire late last night and came across this story:

NEW YORK, Jun 12, 2009 (Xinhua via COMTEX) --

The dollar rebounded against major currencies on Friday after Japanese Finance Minister Kaoru Yosano said Japan is confident in U.S. debt.

Yosano was reported as saying in an interview that Japan has complete trust in the fact that the
U.S. views its strong-dollar policy as fundamental. "So our trust in U.S. treasuries is absolutely unshakable," he said. [emphasis my own]

The minister also said Japan has complete faith in U.S. economic and fiscal policy and the U.S. dollar's position as the world's reserve currency isn't under threat.

Yosano's comments boosted market confidence in U.S. debt, sending the dollar higher. In the previous sessions, the dollar has been under pressure from reports that some major holders of U.S. debt, such as Brazil and Russia, indicated interest in alternatives to dollar holdings.
A weak economic report for the euro zone also helped the dollar rising against European currencies. Industrial production in the euro area fell by 1.9 percent in April from March, according to Eurostat, the statistic agency of the European Union. It was much larger than a loss of 0.4 percent expected by analysts.

The euro bought 1.4010 dollars in late New York trading compared with 1.4126 dollars it bought late Thursday. The pound fell to 1.6450 dollars from 1.6589 dollars.
The dollar rose to 1.1184 Canadian dollars from 1.0980 Canadian dollars, and rose to 1.0793 Swiss francs from 1.0697 Swiss francs. It rose to 98.24 Japanese yen from 97.52 Japanese yen.


This story isn't that surprising. I wrote about potential Japanese involvement earlier in the month:

Market commenters have got it backwards. Instead of harping on the inescapable "dollar trap" that China has tied itself to w/the US, they should take a cue from real-politik analysts who have long pounded the table about the "other Asia." While the 21st century may indeed be the Chinese Century, her rise to power will not come unchallenged. DC diplomats should do more to re-invigorate historic ties w/China's neighbors instead of rushing to placate the commissars in Beijing about the safety of their American investments.

To be fair, this is not a simple task. Since these ties were formed in the formative years of the Cold War, they harken back to an era when terms such as "containment", "listening stations", and "Red China" were used to refer to the Pacific region. The Obama administration will have to forge a delicate balance of power that is accomodating to all parties involved. In some ways, this is a more complex task than before.

During the Cold War, these governments were single party entities that governed state and trade in an iron fist. However, the current situation is a bit more complex. The ruthless right wing states (Taiwan's KMT, S. Korea's General Park, and even Indonesia's Sukarno) of the past have been supplanted by nascent - yet vibrant - multi party systems (democracy is perhaps too strong of a label to use here).
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