TOKYO -- When the currency crisis swept through Asian markets last year, world leaders were counting on Japan, the region's largest economy, to come to the rescue.
Instead, Japan has seen its own currency hit the skids, dropping this week to a seven-year low against the dollar. And, though currency trends are hard to predict, economists worry Japan may become Asia's next big problem.
By letting the yen fall, the argument goes, Tokyo has given up trying to save the region and is just trying to save itself. That could trigger another round of currency devaluations across Asia, pushing those economies into even deeper distress and roiling financial markets around the globe.
"The crisis in Japan is monumental and that creates monumental problems for the rest of Asia," said Kenneth Courtis, a Tokyo economist with Deustche Bank Capital Markets.
The fall of the yen against the dollar -- 10 percent over three months -- has contributed to a growing sense that Japan's own economic problems are even worse than previously thought.
The dollar briefly rose to 138.02 yen in trading Tuesday, a level not seen since Aug. 20, 1991. At midday Wednesday, the dollar was trading at 137.78 yen in New York.
The weakness in the yen vs. the dollar both helps and hurts Americans.
A cheaper yen is a boon for tourists planning to visit the Asian nation this summer. Their dollars should go farther in paying for hotel rooms, buying food and snapping up souvenirs.
A one-week rail pass for two costs 100,000 yen. A month ago, that was $769; now, it is $726. Likewise, a 5,000-yen dinner out that cost $38.50 a month ago is $36.30. The same dinner would have been a $62.50 splurge three years ago, when a dollar bought just 80 yen.
In the United States, the weak yen is boosting Japanese exports of cars and electronics products by making them cheaper for American consumers. Toyota, Honda, Sony and Nintendo all have reported increased export profits. On the other hand, U.S. products and other imports have become more expensive in Japan.
In large part, the latest retreat in stock prices in the United States and around the globe is being fed by fears that Japan's malaise is prolonging Asia's financial ills and increasing the fallout on world businesses.
The last time the U.S. currency was so strong against the yen was in 1991, when a coup attempt threatened to topple Soviet President Mikhail Gorbachev and plunge Russia into political chaos.
The coup failed, panic buying of dollars ceased, and world currency markets returned to normal.
But Japan's problems this time aren't likely to ease so quickly.
Japan already has announced plans to spend hundreds of billions of dollars to boost its economy and prop up banks. That was supposed to also help bolster confidence in the yen.
But the giant rescue packages have served only to slow, not stop, the decline in the country's financial markets.
Earlier this week, Japan's biggest banks reported that despite writing off a record $73 billion in bad loans last year, they are no closer to solving their bad debt problems.
Japan's predicament is made all the more difficult because interest rates already are at historic lows, meaning the only way for it to keep the economy from collapsing may be by using a cheaper yen to make its exports even more attractive abroad.
This doesn't sit well with Washington.
The U.S. government reported last week that its trade deficit hit a record $13 billion in March, as the gap with Japan jumped 8.8 percent to $5.8 billion.
Many economists predict the dollar will keep rising against the yen unless the U.S. government sells dollars in foreign exchange markets to weaken the U.S. currency. Pessimists say the yen could tumble to 150 or lower by the end of the year.
The effects of the weak yen could be even more dramatic in Asia.
Policy-makers had hoped that sales to Japan would help countries such as Indonesia, South Korea, Malaysia and Thailand weather the economic slump caused by sharp declines in their currencies last year.
But instead of becoming a market for Asian goods, a slumping Japan may be forced to join the fray, competing with troubled Asian nations in trying to export its way to recovery.