G7 pledges to stabilise markets

Rich nations pledge co-operation to steady markets and warn of "excessive volatility" in the yen.

    Global market sentiment continues to be weak amid fears of a worldwide recession [AFP]

    Strong yen

    The Japanese currency soared to a 13-year high on Friday against the dollar due to the global financial turmoil.

    The strong yen hurts exporter earnings, and has contributed to the plunge on the Japanese share market.

    Shoichi Nakagawa, Japan's finance minister, said the rapid decline in share prices and volatile movements in the value of its currency, would hurt the Japanese economy.

    On Friday the Japanese currency hit the 90-yen level against the dollar - its highest mark since August 1995 - and the dollar stood at 94.11 yen in Tokyo trade on Monday morning.

    Last week also saw the yen hit a six year high against the euro.

    The financial storm has toppled banks worldwide but had appeared, until recently, to have largely skirted Japan.

    Japanese measures

    But on Moday the country's benchmark Nikkei stock index hit a 26-year low, prompting the Japanese government to pledge fresh measures to shore up the world's second-largest economy.

    The index has lost almost a third of its value this month alone and about half so far this year, hurt in part by the yen's recent rise to its highest in nearly 13 years, making Japanese goods dearer overseas and therefore hurting demand for its exports.

    Taro Aso, the prime minister, said the government would expand its bank bailout scheme and strengthen regulations on short-selling of stocks - selling shares in order to profit from an anticipated fall in prices - after investors dumped banking stocks.

    "It is still unpredictable how the market would react" to the new G7 statement, Aso told reporters.

    "But the government must implement measures because [the crisis] will have a critical impact on share prices, the market and the real economy," he said.

    The new measures come just days after a plan was announced to inject up to two trillion yen ($21bn) of public funds into banks.

    That scheme should be increased to around 10 trillion yen, Kaoru Yosano, the economics minister, said on Sunday.

    Yosano said Aso had ordered action to stabilise the stock market and strengthen the financial system.

    Aso is also expected to announce an economic stimulus package later this week to shore up the economy.

    That package, Japan's second in just a few months, is expected to include a total of 5 trillion yen ($54 billion) in new spending, including 2 trillion yen in temporary income tax cuts.

    SOURCE: Agencies


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