The Coming Week in Asia: Strong Yen, Possibly Devalued Yuan and a Holiday

Also, keep an eye on South Korea, where Daewoo is set to announce a restructuring.
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TOKYO -- When Japanese traders shuffled out of their offices on Friday after a frustrating week, they undoubtedly were looking forward to the weeklong O-bon holidays about to begin.

Sure they'd have to cram onto trains loaded with other weary workers fleeing the cities. But heading back to the countryside to sip barley tea with parents and pay respect to the spirits of their ancestors -- the purpose of the holiday -- was a more pleasant prospect than watching the

Nikkei

crumble.

With America's tech sector falling apart, who wants to trade? Even virtual blue-chips like

Softbank

and

Fujitsu

came under pressure, helping to push the benchmark

Nikkei

nearly 3% lower last week. Why fret about a likely rise in U.S. interest rates when the cool breeze of the mountains pushes the steaming trading floors of

Kabuto-cho

, Tokyo's financial district, further into distant memory?

Those traders who suffer through next week at the office will keep a wary eye on the muscular yen, as well as overseas interest rates. The strength of the currency, which has reached its highest level in around six months, erodes the value of repatriated profits of the country's big exporters who are at the fore of the country's economic recovery.

The yen isn't the only currency grabbing attention. The flaring of tension between China and Taiwan has led to renewed talk of China ringing in the new year with a yuan devaluation. While talk of a yuan devaluation, which would put pressure on the recovering economies of Southeast Asia, has been a market favorite in the past, the recent chatter has taken such a move as a matter of fact.

Other parts of Asia may have more immediate impact for global investors. On Wednesday,

Daewoo

, South Korea's largest

chaebol

, the conglomerates that are the Hermit Kingdom's most well-known contribution to economic theory, will unveil its latest restructuring plan. Daewoo, which South Korea's government rescued in late July by bullying banks into extending it loans, has to hammer out a deal with foreign creditors over its $9.9 billion in offshore debt by Aug. 15.

Don't expect the going to be easy. Foreign creditors are less malleable than the domestic banks and far more litigation-happy. One group of international creditors has already threatened to take legal action if Daewoo, which has interests in everything from shipyards to electronics, doesn't meet payments later this month.

That could reverberate around South Korea, where recovery from 1997's currency crisis has been so swift that the benchmark stock index is up nearly 200% over the last year. "The Daewoo situation will definitely discourage creditors to roll over existing debt to other

chaebol

companies," says Tim Kerans, a fund manager at

Barclays Capital

.

Still, the region is in better shape than it was this time last year, when Asia still wallowed in self-pity and North Korea lobbed a rocket over Japan, something U.S. officials worry it's going to try again soon. Stock markets are up, currencies are up and, at least for the time being, missiles are down.