- Continued weakness in the Japanese yen to 150 against the US dollar could set off the next Asian Financial Crisis, Jim O'Neill told Bloomberg.
- China will see further yen depreciation as an "unfair competitive advantage," the famed economist said.
- In 1997, the first Asian Financial Crisis began in Thailand and spread to other economies in the region.
The Japanese yen this week hit a fresh 20-year low against the US dollar and further depreciation could set off financial turmoil in Asia that's not been seen since a massive crisis hit the region 25 years ago, economist Jim O'Neill told Bloomberg.
Japan's currency on Tuesday fell below 134 against the greenback for the first time since April 2002, with dollar strength largely fueled by the Federal Reserve's aim to raise interest rates quickly to cool down hot inflation.
If the yen depreciates further to 150 against the dollar, that could kick off a rerun of the 1997 Asian Financial Crisis, O'Neill said in an interview with Bloomberg last month that he affirmed on Thursday.
China could potentially intervene in the currency market to protect its economy, which is currently struggling with its slowest growth in about 30 years.
"If the yen keeps weakening, China will see this as unfair competitive advantage, so the parallels to the Asian Financial Crisis are perfectly obviously," said O'Neill, who served as Goldman Sachs' chief currency economist at the time of the crisis. "China would not want this devaluing of currencies to threaten their economy."
This July marks 25 years since the crisis kicked off in Thailand, which had unpegged the local currency from the US dollar after draining much of the country's foreign exchange reserves to defend the baht's value. The move spurred a wave of speculation against other East and Southeast Asian currencies and fueled fears about a global economic collapse if the crisis spread.
During the 1997 crisis, China decided to keep the yuan pegged to the US dollar, aiding in establishing a floor under the region. China had a role in "saving the region" at that time, said O'Neill, who is known for creating the acronym BRICS that referred to major emerging economies Brazil, Russia, India, China, and South Africa.
China could find itself squeezed again, as the yen has dropped roughly 14% in 2022 and has lost about 19% of its value over the past 12 months.
"If we see the Bank of Japan sticking to yield curve control and we see bond yields continuing to rise in the US, this kind of momentum and the fallout could create real problems in Beijing," said O'Neill,