Japan's Moment of Truth

James A. Baker III was White House Chief of Staff from 1981 to 1985, US Secretary of the Treasury from 1985 to 1988 and Secretary of State from 1989 to 1992.

Houston - The worst-case scenario is now all too easy to see: If Japan does not follow up its most recent rhetoric of reform with a resolve to act, the yen is bound to sink further, taking down the Chinese yuan in its wake. That, in turn, will spark a deleterious cycle of competitive currency devaluations across Asia, spreading the effects of the Asian meltdown to the European and American economies. European banks are significantly more exposed in the depressed Asian economies than American banks; the American economy is already beginning to suffer adverse effects from flagging exports and a dramatically rising trade deficit.

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