As news of the military coup in Myanmar reached the halls of the Bank of Japan, staff raced to gather information about the ongoing developments.

“They have apparently kicked out the central bank governor as well.” The shocking news was passed up the command chain at the head office in Tokyo’s Nihonbashi district.  

On Feb.1, Myanmar’s military took control of the country’s administrative, legislative and judicial branches, detaining de facto leader State Counselor Aung San Suu Kyi and several other democratically elected officials.

It is unclear what happened to former central bank chief Kyaw Kyaw Maung, but deputy governor Bo Bo Nge has been detained, according to media reports. Than Nyein, who served as central banker under the previous junta before the first free election in decades in 2015, has been reappointed to the role.

The Bank of Japan, like most central banks around the world, is watching carefully, to see how the military leaders could affect bilateral and regional cooperation on monetary policy and financial stability.

The move brought back stark memories of the country’s decades of military rule, when it was closed off from much of the world. The period of isolation began to change when the military embraced reforms at the beginning of the last decade, with foreign investors flooding into the largely untapped market rich with natural resources.

Japanese companies and financial institutions made significant inroads in Myanmar in the past decade, expecting the market to grow rapidly as it moved toward democracy.

Public and private Japanese players helped Myanmar build its financial and market infrastructure. The Japan International Cooperation Agency contributed to the core systems at the Central Bank of Myanmar, as a joint project with NTT Data and the Daiwa Institute of Research.

The BOJ shares deep connections to the Central Bank of Myanmar as well. It has trained staffers for the Myanmar bank at its head office in Tokyo, and assigned its alumni to advise the Myanmar bank.

What brought Myanmar deeper into the region’s fold was the Chiang Mai Initiative. The currency swap agreement, designed so members assist each other with liquidity in times of crisis, originally launched with Japan, China, South Korea and five countries in Southeast Asia. The remaining members of the Association of Southeast Asian Nations, including Myanmar, have since joined the framework.

Myanmar formally joined the Chiang Mai Initiative in 2010, during BOJ Gov. Haruhiko Kuroda’s tenure as president of the Asian Development Bank. The ADB on Feb. 2 issued a statement saying it was “deeply concerned about the current situation in Myanmar, which could constitute a serious setback to the country’s transition and development prospects.”

The U.S. has decided to impose sanctions on Myanmar military officials over the coup, while China, a major economic partner for Myanmar, has largely kept silent.

Turning back the clock on democracy could affect future public and private investments in Myanmar. There is also concern over how the coup can affect Myanmar’s membership in the Chiang Mai Initiative.

“The initiative is an important link for Myanmar to the international community, but the country may have a harder time using it under protracted military rule,” a source at the BOJ said. Some at the Japanese bank worry that developments in Myanmar could undermine international monetary cooperation.

SOURCE: TAKERO MINAMI, Nikkei staff writer