August 15, 2007 (LPAC) -- In the midst of a vast credit crunch that is severely hurting financial markets, South Korea's Finance Minister Kwon U-kyu warned that the rapid withdrawals of funds from Japan, would spur a financial crisis.

He warned especially of the danger from the Yen carry trade, and suggested that countries take measures to stop the trade. The yen carry trade describes the process in which investors borrow money at very low interest rates in Japan, to reinvest them elsewhere at higher returns. Problems in global markets are causing an unwinding of the carry trade, driving up the value of the Japanese currency against other world currencies.

"Excessive yen carry trade and other kinds of trade based on interest differences could shake the macroeconomic foundation of countries into which the currency flowed, the South Korean finance minister said. "Abrupt withdrawal of the currency due to the strong impact from the financial markets could likely cause a huge amount of chaos reminiscent of the 1997 financial crisis."