In a well-crafted essay, R. Taggart Murphy writes for New Left Review on the sustainability of the US current account deficit and the role played by East Asia's dollars (also available as a PDF). He is particularly interesting on Japan, where he teaches. Here's a short excerpt:
There is talk in financial circles in Tokyo that the Ministry of Finance has concluded that global imbalances have become too great; that the limits of Japan’s dollar support capability have finally been reached. A real chance exists that Japan will stop throwing good money after bad in the next dollar crisis and sit on its hands. Of course the price would be heavy—once the dollar goes into freefall and the yen breaks past its historical high water mark of ¥79/$1, Japan will be facing the write-off of much of its accumulated dollar hoard and the potential loss of hundreds of thousands of manufacturing jobs. But Japan has learned a great deal during the past fifteen years about coping with and spreading out the pain of job loss; Mikuni Akio has suggested that, finally freed of the deflationary burden of supporting vast pools of idle dollars (idle as far as Japan is concerned), the Japanese economy could find new strength in an era of a super yen.
Among other things, the new purchasing power of Japanese households could not only help compensate those facing job loss but could finally provide the elusive shift to an economy driven by vibrant domestic demand rather than exports—the stated goal of Japan’s policy makers for a generation. A case can be made that Japan is in better shape now to deal with the economic fallout of a dollar crisis than it has been at any time in the past twenty years.
The political fallout is another question entirely. The collapse of the dollar will take with it American hegemony; the United States will be hard-pressed to sustain its global military reach in a world where it must earn euros or yen to pay its foreign creditors rather than fob them off with more us government paper. No matter what form it takes, the end of American hegemony will bring the return of the central Japanese political question—the right to rule—with a vengeance; particularly so because it may well be accompanied by serious upheaval in Japan’s most important neighbour. There is no obvious present substitute for the American market in providing the engine of demand to sustain the kind of growth China needs in order to manoeuvre its way past the ever-looming threat of a domestic financial crisis, unless it were to be Japan itself.
The piece end with no real conclusion, and is a little too millenarist. Worth reading, nonetheless.