Rising U.S. Treasury yields, a sharply weakening Japanese yen, and a tech boom sweeping through markets — the simultaneous emergence of these three phenomena has drawn comparisons to the market atmosphere preceding the 1997 Asian Financial Crisis. HSBC Chief Economist Frederick Neumann offers a key judgment in his latest report: the surface signals are indeed strikingly similar, but the fundamental structure of Asian economies has been turned on its head. What warrants the most concern now is not a financial system collapse, but rather the direct hit to Asia’s export-oriented economies if U.S. AI hardware demand cools.
In a report published on August 31, Neumann noted that ahead of the 1997 crisis, rising U.S. Treasury yields, yen weakness, and tech optimism together shaped the market environment of that era — and these three factors are now resurfacing in different forms. But he stressed that the differences between the two periods “outweigh the similarities,” with Asia’s vulnerability having shifted from capital and financial systems to dependence on U.S. AI hardware demand.
A Historical Comparison of Treasury Yields and Yen Movements
The trajectory of U.S. Treasury yields is the most obvious common feature between the two market environments in Neumann’s view. In October 1993, the benchmark 10-year U.S. Treasury yield stood at approximately 5%, climbing to around 8% by November 1994. Even by April 1997, yields remained at roughly 7% — about 200 basis points higher than four years earlier.
The 2026 trajectory is equally striking. The 10-year Treasury yield has risen from a historic low of 0.5% in August 2020 to the current level of approximately 4.8%. “Granted, that took six years; but this year alone, yields have jumped roughly 80 basis points from 3.9% in February,” Neumann said.
The U.S. Treasury Department also announced last month that it would launch buyback operations for 10- to 30-year U.S. Treasuries, and would “at least double” the buyback size from $2 billion (approximately NT$64 billion) to more than $4 billion (approximately NT$130 billion), signaling heightened official concern over the trajectory of long-dated yields.
The yen’s movement provides another historical parallel. In April 1995, the yen touched a cyclical high of ¥80 per dollar; by April 1997, it had depreciated to ¥130 per dollar, a cumulative decline of roughly 55%. This time around, the yen has similarly experienced a sharp weakening, falling 57% from approximately ¥103 per dollar in January 2021 to a low of ¥163 per dollar in July. An unusual joint intervention in the currency market by Washington and Tokyo subsequently pushed the yen back to its current level of around ¥160 per dollar. The market is still assessing the possibility of another round of intervention by the two countries.
Tech optimism has also re-emerged as a major market backdrop. Before the 1997 crisis, the rise of the internet fueled intense enthusiasm for technology investment; today, the AI boom plays a similar role, serving as the core force driving market sentiment and capital flows.
From Financial Fragility to Demand Fragility
The real difference between the two cycles lies first in the relationship between Asian economies and global capital. Neumann pointed out that in the 1990s, most Asian economies were capital importers — receiving more investment from abroad than they sent out, with domestic savings insufficient to cover spending needs. Under that structure, rising dollar funding costs and yen volatility that unsettled investors became key catalysts for pressure on Asian financial systems.
“Rising dollar funding costs and unsettling yen volatility were therefore key catalysts for stress in the region,” Neumann wrote in the report.
The situation has fundamentally changed today. Asian economies as a whole have become capital exporters, and rising U.S. funding costs and yen weakness no longer constitute the same core source of pressure as they did in 1997. But that does not mean Asia can fully insulate itself from external shocks.
Neumann believes what deserves greater vigilance now is Asia’s dependence on the U.S. AI hardware boom, which is underpinning growth across multiple economies in the region. South Korea, Japan, Taiwan, and Singapore are all drawing growth momentum from electronics exports tied to the AI boom. In other words, shifts in the U.S. AI investment cycle are now directly wired into the lifeblood of Asian economies through the electronics supply chain.
Neumann therefore draws a clear distinction between the two types of risk: “Unlike the financial fragility of the 1990s, Asia now faces demand fragility.”
He lays out two possible scenarios. First, if U.S. Treasury yields continue to rise and funding costs climb further, eventually dragging down the AI hardware boom, demand for Asia-related products could take a hit. Second, if sharp yen volatility further disrupts global funding markets, it could similarly depress demand for Asian goods.
Neumann warns that in either scenario, Asian export demand could collapse and economic growth would stall. This means that while Asian economies have shed the financial system fragility of the past, they have — in the new global division of labor — tethered their growth momentum to the ups and downs of the U.S. technology investment cycle.
