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2008年10月29日 (水)


2008/10/29--The Asahi Shimbun, Oct. 28(IHT/Asahi: October 29,2008)

EDITORIAL: Mayhem in the markets


How long will the yen's rise against other major currencies and the stock market's free fall continue to deepen anxiety about the Japanese economy? Tokyo stocks fell through the post-bubble low on Monday, driving down the benchmark Nikkei 225 index close to the 7,000 level. (The index dipped below 7,000 on Tuesday.)


In response to the market mayhem, Prime Minister Taro Aso pledged to "take every possible measure to stabilize the markets and facilitate smooth functioning of the financial system."


The package will be designed to achieve two aims. To stop the stock market fall, the measures include a resumption of purchases of shareholdings from banks by the Banks' Shareholdings Purchase Corp., tighter regulations on short selling, which adds to the downward pressure on the stock market, and an extension of tax breaks for securities investments.


The Banks' Shareholdings Purchase Corp. was established in 2002 amid the nation's financial crisis. The public entity's mission is to buy depressed shares from banks so that banks don't dump them in the market and thereby accelerate the stock market's decline. The Bank of Japan also bought shares from commercial banks between 2002 and 2004. The government plans to ask the central bank to join the corporation again in the share-purchasing operation.


The second aim will be to prevent falling stock prices from undermining banks' capital adequacy and making them excessively reluctant to extend new loans, which would further depress the economy. The expected steps include a new version of an expired law on strengthening financial functions, on which the Diet will start deliberations shortly, and relaxing part of the capital adequacy requirements for banks.


The envisioned new law would allow the government to quickly inject public capital into banks and other lenders, such as shinkin banks and credit cooperatives, whose capital bases have been eroded by sinking stock prices and other reasons. This plan should avert a credit contraction due to banks' capital inadequacy.

The government is reportedly considering expanding the fund for capital injections to 10 trillion yen. It is certainly important to secure more than enough money for this plan.


Another measure would be a temporary freeze on an accounting standard that requires banks and companies to evaluate their holdings of securitized financial products based on actual market prices when they close their books. The mark-to-market accounting rule can prompt businesses to sell battered securities products before their prices fall further, thereby accelerating the market downslide.


A suspension of the rule would help stop businesses from resorting to the sell-offs to limit damage to their balance sheets. The step will also ease pressure on banks to cut off credit lines by allowing them to avoid damage to their capital bases from declining values of their massive holdings of such securitized products.

The United States and Europe are now moving to suspend the market-price accounting rule. Bending an accounting principle is undesirable. To stop the contagion of panic, however, Japan may have no choice but to follow suit.


All potentially useful measures should be legislated swiftly. Enacting a measure after it becomes necessary is too late.

Apparently, there are few disagreements between the ruling and opposition camps over what kind of action should be taken to restore market stability.

The two sides are expected to agree, for example, on such proposals as reviving the financial rehabilitation law, which would enable the government to swiftly put troubled financial institutions under state control, and providing full protection of deposits.




Speedy responses hold the key to restoring stability in the markets. While the effects of each individual measure may be limited, the government should start with things it can do immediately.


The issue of how to strengthen the economy over the long term, on the other hand, requires a long and informed discussion.


As for the currency market, a joint statement by major economic powers is no longer enough to arrest the yen's relentless rise. It is high time for coordinated market intervention by the leading industrial nations.



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