The political economy of the dollar and the yen in East Asia

From the early 1980s until 1997 large amounts of Japan's current account dollar surplus were invested in U.S. Treasury securities. This economic relationship developed into an “alliance” sustained by the economic policies of U.S. and Japanese authorities. The U.S.-Japanese alliance indirectly promoted East Asian export-led growth during 1985–95. However, policies associated with the U.S.-Japanese alliance also contributed significantly to the 1997 Asian financial crisis. During the past years Japan has launched a number of initiatives for aid and regional monetary co-operation with the aim of internationalising the yen and redirecting regional current account surplus flows to go within the region, rather than being invested in the United States. The article assesses the viability of this regional challenge to U.S. monetary hegemony.