Japan's approach to international affairs has long been characterised by a seeming willingness to pay large amounts of money without taking responsibility for policy leadership. So it has been with the Asian economic crisis.

While the International Monetary Fund, under the leadership of the US, was left to sort out the practical solution, Japan's comitments to Asia during the early part of the crisis amounted to some $80bn, to which must now be added a further Y2,000 in bond guarantees pledged under phase two of its Miyazawa rescue plan for the region.

But Japan claims to have bought itself a little bit more than a quiet life through its financial contribution. While some Asian governments would have preferred to see Tokyo do more to restructure and shore up its own economy as its contribution to dealing with the crisis, there is no doubt that they also appreciate the financial assistance that Japan has provided.

In contrast to the contingency funding offered by other countries, this has taken the form of real cash which may go some way towards cementing Japan's longer-term relations within the region.

Besides a desire to protect its extensive investments in south-east Asia, Japan also sees lasting benefits to its own economy and financial system from the assistance it has provided to the region. In particular, the latest phase of the Miyazawa plan, under which Japan has committed to provide bond guarantees, could help Japan's own bond market and its investment
banking industry.

Eisuke Sakakibara, until recently the outspoken vice-minister of international finance, argues that the crisis has now eased to the point where it is becoming essential to bring the troubled countries of south-east Asia back to the bond markets. The guarantee scheme is a way of doing so, but it will also create an opportunity for more issuance of bonds in yen and for high-yielding paper which could be bought by Japan's liquid institutional investors.

"Hidden behind our scheme is our intention to mobilise Japanese money," says Mr Sakakibara. "Bank lending has declined, but there's huge excess money in international institutional investors' portfolios. If we could possibly guarantee some of the borrowings from Asian countries, that should give a good combination of risk and return for Japanese investors."

Part of the thinking behind the scheme is a desire to promote the use of the yen as an international currency. Japan is concerned that it might be left out as the dollar and the euro eventually come to dominate the world financial system. Officials say it would like to see the yen used more as a currency for settling trade and for capital market transactions.

Other current examples of efforts to internationalise the yen include the removal of withholding tax on short-term Japanese bills and - from September - on longer-dated government bonds. In addition, Japan has broadened the range of government paper on offer to create a deeper debt market.

One hope is that greater use of the yen in Asia should lead to less currency mismatching in cross-border transactions and so add depth and stability into the region's financial markets. But Japan, as a capital surplus country, is also keen to ensure that its own financial industry retains a significant market share in the wake of its "Big Bang" reforms.

How far it succeeds remains to be seen. Asian countries traditionally keep only a modest proportion of their reserves in Japanese currency, and have long resisted the idea of using the yen as a numerator for international trade. Since the US is their main export market, the dollar fits more naturally into this role.

The latest phase of the Miyazawa plan shows a fresh determination on the part of Japan to try to build a more integrated regional financial system with Japan at the centre. If it succeeds, that would give it a considerably greater leadership role in Asia - in policy as well as financial terms.


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