Recent financial market volatility, triggered by a widespread selloff in emerging currencies, has started to raise concerns over the economy despite it having shown signs of overcoming nearly two decades of deflation.

Fears about a possible repeat of the Asian currency crisis in the late 1990s have sharply driven down share prices across the globe, including the Nikkei 225 stock average, which had soared 57 percent in 2013 on the back of Prime Minister Shinzo Abe’s policies dubbed “Abenomics.”

The yen has been on an upward trend since early January, with demand growing for the currency regarded as a safe-haven investment, after it plunged last year due in part to the Bank of Japan’s drastic monetary easing.

Analysts say global equity and foreign exchange markets could pick up soon, but others remain cautious about the outlook for Japanese share prices and the yen.

While stock falls may worsen business confidence, the appreciation of the yen is likely to weigh on the profitability of export-oriented manufacturers like Toyota Motor Corp. and Sony Corp.

This has dampened optimism that the expected downturn following the consumption tax hike in April could be eased by growth in exports.

“It is hard to predict how the current (unstable financial) conditions will affect each nation’s economy,” Toyota Managing Officer Takuo Sasaki said at a news conference Tuesday, adding the company will watch carefully whether the market turbulence will be temporary or prolonged.

Sasaki’s remarks came on the same day that Toyota raised its group operating profit projection for fiscal 2013 through March to a record ¥2.4 trillion from an earlier estimate of ¥2.2 trillion.

Emerging currencies have come under downward pressure against a backdrop of anxiety that the “tapering” of the U.S. Federal Reserve’s large-scale monetary stimulus could result in an outflow of capital from developing economies.

A plummet in the currencies of emerging countries would cause rapid inflation and severely choke the economy there.

Investors are paying close attention to how Janet Yellen, who formally became the new chief of the U.S. central bank Monday, will address the ongoing market turmoil, ahead of a meeting of Group of 20 finance chiefs Feb. 22 and 23 in Sydney.

“The crux of the matter is whether Yellen will indicate the Fed will rethink the pace of its tapering program,” a foreign exchange trader at a financial institution in Tokyo said.

The Fed decided last week to cut a further $10 billion from its $75 billion monthly asset purchases, brushing aside concern over the future course of emerging economies.

“Unless Yellen expresses wariness over emerging economies, more players could let go of risky assets and buy the safe-haven yen, dealing a heavy blow to the Japanese economy,” the trader said.

Analysts have begun to warn that the recent instability in emerging markets suggests a recurrence of the Asian currency crisis that started in July 1997 with the collapse of the Thai baht.

“We have a past trauma,” said Hideo Kumano, executive chief economist at Dai-ichi Life Research Institute.

After the consumption tax rate was raised to 5 percent from 3 percent in April 1997, the economy fell into recession several months later not only because of the tax hike itself but of a drop in exports caused by a slump in emerging economies, he said.

“It is difficult to completely erase the past painful memory,” Kumano added.

Other experts, however, are less concerned about the potential negative impact of a downturn in emerging currency markets.

“Since last year, many Japanese exporters had expected emerging economies to slow down, with speculation intensifying that the Fed would scale back its aggressive monetary easing,” said Masashi Shimominami, credit strategist at Mizuho Securities Co.

“They have already prepared for various risks stemming from emerging markets,” he added.

Takashi Kodama, head of Asia research at Daiwa Institute of Research, also said the decline in emerging currencies, coupled with a recovery in industrialized economies, would eventually boost exports of developing nations and benefit their economies.

The International Monetary Fund late last month upgraded its economic forecast for the world economy in 2014, saying it is projected to grow 3.7 percent during the year, buoyed by expansion in advanced economies, compared with 3 percent growth in 2013.

“A risk-averse mood is unlikely to continue for an extended period, with business sentiment improving,” Kodama said, emphasizing the recent financial market volatility is only “temporary.”

Market participants say the BOJ would implement additional monetary easing steps if the consumption tax hike and a downturn in emerging economies drag down Japan’s economy.

But Dai-ichi Life’s Kumano said BOJ chief Haruhiko Kuroda may maintain its monetary easing policy introduced last April, adding Kuroda “apparently expects the yen will decrease in the long run” amid the Fed’s tapering.

“The BOJ may take a wait-and-see attitude until interest rate gaps between the United States and Japan widen further,” he said.

The yen slid versus the dollar by 21.8 percent in 2013 from the previous year on an average basis, according to data from the Finance Ministry.

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