The latest events in Asia have raised fears that a genuine threat to the world economy may be emerging. The crisis has already helped to destabilise international stock markets. Until recently, most analysts had believed the impact of events in Thailand and Hong Kong would be contained to Asia.

However, the latest developments in Japan and South Korea have changed this view. In an editorial in today's issue, the influential Financial Times warns: "The Asian crisis has become a global threat.

"However destabilising for the countries directly concerned, this was not true when it affected only a few countries in south-east Asia. It was not even true when it undermined emerging markets worldwide."

"But its spread to South Korea and Japan changes the picture. A global debt deflation is now at least conceivable."

The fear is that the weakness in the financial sector in Asia could cause a threat to the international economy.

The events in South Korea in recent days are similar to what has been played out across Asia in recent months. The currency - the won - has come under pressure as international investors worry about the sustainability of its exchange rate. Much of the concern relates to the health of the financial system, as slowing growth leaves the banks lumbered with major levels of bad debt. A similar story has been played out in many other Asian economies, in recent months, generally resulting in a currency devaluation and financial upheaval.

But the difference this time around is that Korea is a major economic force - the 11th largest economy in the world. It is now trying to get international financial support to ward off a full-scale liquidity crisis. And if the won is sharply devalued, this in turn will put pressure on the other economies of the region, including Japan.

The Japanese economy, meanwhile, is also threatened with a banking crisis, as investors digest the latest indications from the government that it will not support financial institutions.

If the Japanese and Korean economies head into recession, exports from the rest of the world will suffer. More seriously, the danger is that Japanese financial institutions will start to sell investments elsewhere in a bid to shore up their ailing finances. Unless international governments - and Japan in particular - act quickly, the major financial markets could again come under pressure.