Japan Just Can't Switch to Gold - Yet.

There was an occasion in 1996 when former Japanese prime minister Ryutaro Hashimoto pondered out loud during a visit to New York about what might happen if Japan were to reduce its (even then) large holdings of US dollar securities. Washington appeared to get the message and the severe upward pressure that the yen had been subjected to eased off. Mr Tanigaki, according to some schools of thought, may have been issuing a similar veiled threat ahead of this week's G7 finance ministers' meeting in Florida.

The fact is, however, that at some time the threat of Asian governments running down their colossal dollar holdings (which constitute the bulk of the US$1.9 trillion of official foreign exchange reserves held in Asia) is going to crystallise. It could happen if Japan's economy is moving, as some economists suggest, beyond total export dependence towards a broader-based domestic recovery. Or it could happen if rising US interest rates stall growth and demand for imports. But happen it surely will and reshaping the dangerous structure of mutual dependence between East Asia and the US should be top of the agenda for the G7.