Recent financial inflows in Southeast Asia have caused upward pressures on regional currencies and heightened risks of asset bubbles. With memories of the 1997 Asian financial crisis fresh in mind, this surge of investment prompted ASEAN to create an institution to mitigate the accompanying risk. This institution was ASEAN+3, an avenue for financial integration and trade and monetary cooperation that operates alongside the bloc's mechanism of political integrations, or the ASEAN Community.
But this mechanism also evolved as an arena of competition over financial leadership, particularly between Japan and China. With China and South Korea skipping the ASEAN+3 meeting, Tokyo has an opportunity to assert its leadership and push for its own alternatives to regional systemic risk control.
Indeed, Tokyo historically has preferred to take the lead in such groupings. For example, ASEAN established the Chiang Mai Initiative in 2000 in the aftermath of the Asian financial crisis. And as soon as it was conceived in 1995, Japan positioned itself as the group's leader in hopes of paving the way for an Asian Monetary Fund. The fund never came to fruition, however, because of diverging interests among ASEAN's members and Western and Chinese opposition.
Overcoming Malaise
Japan has recently lost some of its regional political and economic clout — a degradation that coincides with China's ascendance. Throughout the 2000s, and most markedly after 2008, China enacted proactive economic policies, signing several currency swap agreements with neighboring countries and major trade partners. Beijing also offered massive investment and aid to important markets and countries where it sourced raw materials. These moves enabled the yuan to be used internationally and provided leadership in a regional "firewall" against the onset of a potential financial crisis.
But these moves also were a threat to Japan's own monetary objectives. Tokyo wants to overcome its economic malaise and implement engaged and active economic policies while reclaiming its security and political influence in the region. Considering that the Liberal Democratic Party just retook the government, Tokyo is set to enact sweeping changes at home to reclaim some of its lost influence. The new government in Tokyo has prioritized ASEAN policies.
It is in this context that the May 3 meeting should be viewed. As China continues to move toward internationalizing its currency, and Japan seeks to counter what appears to be more than a decade of unopposed Chinese gains, a growing competition over regional financial coordination in the region may re-emerge.
