Japan's PM: US bailout is 'insufficient'

October 16, 2008 5:10:38 AM PDT
Japanese Prime Minister Taro Aso said Thursday the U.S. bank bailout was insufficient to quell investors' fears and the lack of confidence is contributing to the renewed plunge in global stock markets. "Since it was insufficient, the market is again falling sharply," Aso told lawmakers at the upper house budget committee in parliament. "My understanding is that it was the voice of markets." The budget committee was wrapping up talks on a supplementary budget aimed to help struggling small- and mid-sized firms amid an economic downturn.

Aso made his comments as Japan's key stock index plummeted nearly 10 percent in early trading Thursday following another dive on Wall Street amid growing global recession fears. The index later fell even lower, closing down 1,089.02 points, or 11.4 percent, to 8,458.45, the biggest one-day percentage drop since the market crash of October 1987.

The U.S. Congress earlier this month approved a plan to use $700 billion of public money to buy bad mortgage-related securities and loans from troubled financial institutions. Some $250 billion of that will be used to buy shares in leading U.S. banks.

Aso said that the continued market volatility suggests that more action is needed. He did not elaborate.

Analysts brushed off Aso's comment, saying his view was shared by many investors and had been already factored in.

"He only said what any investor already knows," said Kazuki Miyazawa, market analyst at Daiwa Securities SMBC. "An injection of public money does not immediately relieve banks' lending reluctance, and many of us agree that further steps are needed to improve the market conditions."

Shinichi Ichikawa, chief strategist at Credit Suisse, said Aso's comment caused little damage to the market.

"The biggest reason for (Thursday's) decline is the market fear about the U.S. economy. Investors thought they just climbed down a mountain and found another one in front of them," he said, referring to a brief rebound in stock prices in reaction to measures taken after the G-7 and renewed concerns about additional steps.

"Right now, fears are mounting, and the market psychology is extremely negative," Ichikawa said.

Japan has said that it is willing to offer funding to help prop up crumbling financial companies around the world.

Japan is sitting on more than $950 billion in foreign exchange reserves, second only to China's $1.9 trillion. Together, they control a major pool of funds that could come to the rescue of the West's severely strained financial industry. Options range from helping to provide credit to strapped financial institutions to cash infusions in return for ownership stakes in them.

Finance Minister Shoichi Nakagawa said Tuesday that Japan would be willing to contribute to a rescue led by the International Monetary Fund. He said that at a Group of Seven meeting in Washington last weekend that brought together finance ministers from Japan, the United States and five other major economies.


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