The striking feature of the recent crisis is how Asian currencies are perceived as safe havens. Despite Japan’s domestic difficulties, the JPY has powered along rising to 79.8 against the USD at one point yesterday. The CNY would have risen as well were it not heavily managed – instead, the Chinese authorities have to deal with the additional reserves that accumulate.
Being a reserve currency is a curse since international capital flows tend to drive the exchange rate rather than domestic economic performance. This is a strong reason why China should continue to manage their exchange rate and the MoF in Japan should consider intervening once again.