Flash - Richard Koo: a personal view of the macroeconomy

In current credit squeeze, US would be well advised to remember Japan's experience following the collapse of the bubble

* US recession speculation surges early in 2008

The markets experienced severe turmoil between late last year and early this year. In the forex market, rising expectations of a US recession combined with a weak December jobs report to send the yen sharply higher against the dollar.

Recession speculation also directly affected stock markets in all nations. In Japan, where many stocks are sensitive to cyclical fluctuations and the government has neglected to do anything about the slump in domestic demand, US recession worries joined with concerns about a rising yen to prompt a major sell-off of equities.

Attention also focused on a further widening of losses at US financial institutions, with growing speculation about further injections of capital from sovereign wealth funds (SWFs) in Asia and the Middle East.

Perhaps in response to this string of bad news, Fed Chairman Ben Bernanke abruptly changed his tone in a speech on 10 January and indicated the Fed would do whatever is necessary to deal with the unfolding problems.

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