"A softening yen will undermine the hard-won economic stability in Asia," said Zhao Jinping, a senior research fellow at the State Council Development Research Centre (DRC), on Friday. "The continued fall of yen will definitely put increasing pressure on other currencies in Asia."

Grave fears have been felt in peripheral countries and regions for an incessantly sliding yen. Against Japanese schemes for a depreciation of yen some countries have already on their part made plain their policies going to be adopted.

Doubtless, the impacts of fallout of this are palpable. The day September 26 saw yen's exchange rate at an all time low 130:1 and consequently an all time low by some other currencies like those of Singapore, Republic of Korea, Thailand and the Philippines.

Clearly, all these gains will be at the expense of its Asian neighbors -- Southeast Asian nations, South Korea and China, said Jiang Ruiping, a professor at the Foreign Affairs College in Beijing. "The Asian economies, most of which rely heavily on exports, are very susceptible to a falling yen".

The Japanese Government apparently intends to use the sliding yen to expand exports and offset weak domestic demand. At the same time, rising prices on imports will help the government overcome the country's chronic deflation.

Competitive devaluation is a possible scenario if the yen further weakens, he said, adding the Japanese Government's nonchalant attitude to the yen's free fall will only reinforce its image as an irresponsible country.

The yen has tumbled by nearly 15 percent since September, sending fears to other parts of Asia which are still reeling from the devaluation contagion in 1997 and 1998. South Korea has openly expressed their objection to the Japanese Government allowing the yen to fall.

But Japanese officials have either been silent or cited the country's economic weakness. Some of them have even blamed China, saying the renminbi is undervalued, thus hampering Japan's exports growth.

The yen hit a three-year low of 132.08 to one US dollar on Thursday. It rebounded a shade to 131 on Friday because market players thought the pace of its fall was too fast, so they stopped selling to watch what the Japanese Government was going to do.

Nothing -- was Japanese officials' reply. Japanese Prime Minister Junichiro Koizumi was quoted by media as saying that they will "leave it up to the market."

With interest rate at zero and fiscal stimuli ineffective, depreciation of the yen is seen by many as the only policy option that Japan can take at the moment to kick-start its recession-bound economy.

But Zhang Shuying, head of Japanese economic research at the Chinese Academy of Social Sciences, said a soft yen is not the cure for its structural problems, which are the underlying reasons for its economic recession. "They really should not place their hopes on devaluation (of the yen)".

DRC's Zhao said Japan's support of a weak yen seems to have won the backing of the United States, which has been seeking to strengthen the US-Japan alliance in the difficult times the United States is currently experiencing. The United States favors a soft yen also because it wants to maintain a relatively strong dollar, which was weakened by the September 11 terrorist attacks and the major economic downturn in the world's biggest economy.

But the US action supporting the weak yen could backfire if the yen fell to a level that could hurt US exports, Zhao said.

Andy Xie, executive director of Morgan Stanley Asia, said comments that the renminbi should be appreciated are illogical. For the period from 1990 to 2000, Japan's trade surplus was US$1.05 trillion, which was 13.5 times the combined figure for the Chinese mainland and Hong Kong. "It is the yen that should be appreciated in light of these figures".

As part of a country's monetary policy is its exchange rate policy instituted. What policy is to be had to that specific end by the country is its own right without doubt. But by its exchange rate it can by no means be separated from the others or have no fallout on the others.

Just to the contrary. This is especially so when a situation of mounting economic globalization is being developed: a country's exchange rate policy must be an integrated part to the whole of world economic cooperation between countries, not to say as a topic topping the agenda of seven world economic powers.

From this Japan is not to be excluded beyond doubt and the deciding factor on its exchange rate should be markets instead of an insidious disruptive leading part by the country against market rules and order.

(People's Daily January 1, 2002)