Yen Bloc or Koala Bloc? Evidence of the Relevance of Australia to East Asian
Economies
Chakriya Bowman
School of Finance and Applied Statistics, Australian National University, Canberra, ACT 0200,
Australia
JEL classification: F36; F31
Keywords: foreign exchange; cointegration; financial crisis
Abstract: As the strength of the Japanese economy grew during the 1980s, many
studies examined the integration between currencies in the region. Several studies
found evidence for a “yen bloc”, a significant and strengthening relationship between
the Japanese yen and other regional currencies due to trade, direct and indirect
investment by Japan in the region. However, few studies compared the role of Japan
with another influential regional economy, Australia. On closer investigation it
appears that the Australian dollar has a similar role in the East Asian region, and the
linkages between the dollar and the Asian currencies show as much support for a
“koala bloc” as a “yen bloc”. In fact, as the 20th Century drew to a close, the
Australian dollar appears to be a regional currency of at least equal importance to the
yen. With the ever-increasing economic participation of Australia in Asia, and
considering the economic difficulties facing Japan, it is a trend that can be expected to
continue.

The author wishes to thank Richard Heaney and Robert Faff for their supervision and input
throughout the development of this paper.

Tel: +61 2 6295 1193
email: chakriya.bowman@absalom.com.au