Abstract
The latest currency crisis in Asia clearly shows that the traditional exchange rate policy of pegging to the dollar is no longer consistent with macroeconomic stability in Asia's developing countries, and that they should peg closer to the Japanese yen. The weakening yen since mid‐1995 was a major factor triggering the crisis in Asia which has led to a further depreciation of the yen. Severing the vicious circle between economic deceleration in Asia and a weakening yen is crucial for the Asian economies to recover. Japan can help Asia as well as itself by pursuing a policy mix of stimulating domestic demand and pushing the yen up against the dollar.
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