Market observers are predicting that most of the Asian Tigers--Hong Kong, Singapore, South Korea, and Taiwan--and such Tiger "cubs" as Malaysia and Indonesia, are likely to allow their currencies to rise against the dollar in coming months. The reason: the strong yen is inflationary for their economies.
Though the Tigers import a lot of Japanese capital goods and components, their exports to Japan are relatively low compared with their exports to the U.S. So they must steer a middle course between yen appreciation and dollar depreciation to dampen inflation while maintaining buoyant growth.
The catalyst in this scenario is a rising capital flow from Japan to the rest of Asia. Rather than monetize this flow, the Tigers are likely to allow their currencies to drift higher while relying on productivity gains and higher-value exports to maintain competitiveness.