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2008年10月13日 (月)


2008/10/13 --The Asahi Shimbun, Oct. 11(IHT/Asahi: October 13,2008)

EDITORIAL: Stock markets on ropes


Stock markets around the world appear to be trapped in a downward spiral. On Friday in Tokyo, the Nikkei Stock Average temporarily fell by more than 1,000 points, approaching a level only about 500 points above the post-bubble low of 7,607. The benchmark index plunged by more than 3,000 points in seven trading days.


Among major stock markets, the Japanese market has suffered an especially steep fall in the latest round of global sell-offs.


The explanation lies partly in the very factor that drove the economy's six-plus years of continued growth and partly in a problem that has been left unaddressed.


Strong exports served as the main engine of Japan's economic growth during the past several years. However, a resurgent yen--to about 97 yen to the dollar--combined with a global economic downturn has clouded earnings prospects of leading exporters. This has led investors to dump shares of blue-chip companies in such key export industries as automotive and electronics.


One major problem with the Japanese economy has been been that its securities markets are overly dependent on foreign investors. The financial crisis has triggered a rush of U.S. and European investors to dump their investments in overseas markets. And the Tokyo stock market has taken it on the chin.


Similarly, the rolling crisis is depressing the Japanese real estate market, which has also been growing on the back of inflows of foreign capital. The downturn recently caused the first failure of an exchange-listed Japanese real estate investment trust (J-REIT).


Adding to this unpleasant economic news, Yamato Life Insurance Co., a midsize firm that invested heavily in REIT and other high-risk U.S. financial instruments, was forced into bankruptcy.

Yamato Life attracted customers by offering high returns on policies and tried to meet its liabilities by making high-return, high-risk investments. The financial crisis has made this hazardous strategy unsustainable.


Until now, the general perception has been that Japanese financial institutions should escape relatively unscathed and in basically good shape.

As a country that experienced its own banking crisis, the standard argument is that Japan can and should teach other countries how to respond to the current crisis.

But a fire has broken out in the financial sector in Japan. Taken off guard, the Tokyo stock market is now in deep distress.

The government and the financial authorities must first make an all-out effort to stop this wave of fear from growing and spreading.



Yamato Life's collapse is certainly an exceptional case. If stocks keep plunging, however, some financial institutions may fall into serious trouble. Regulators should take a fresh look at the health of all financial institutions.


At the same time, the government should reinforce the safety net to make the financial system better prepared for their possible failures.


A law authorizing the government to inject taxpayer money into smaller lenders to boost their capital bases expired at the end of March this year.


A program for public support to life insurance firms will also expire next spring.


Both the ruling Liberal Democratic Party and main opposition Minshuto (Democratic Party of Japan) are considering measures to deal with the crisis, including the revival of the law and an extension of the program.


With local economies in the doldrums in many parts of the nation, some small- and medium-sized lenders are facing rough going.


All measures that can help improve the situation should be put together and implemented as quickly as possible.


The finance ministers and central bank governors of the Group of Seven (G-7) leading industrial countries met in Washington on Friday and agreed to a plan to rescue the financial industry.


An emergency meeting of the leaders of the Group of Eight (G-8) major powers to discuss responses to the financial crisis is also being considered.


As the country holding the G-8 presidency this year, Japan should lead international cooperation to untangle this crisis.


We also have a request for Japan's leading companies. The global recession is indeed creating a tough business environment, but top Japanese companies have accumulated significant resource reserves during the years of economic expansion. They should now tap them to kick-start renewed growth in these difficult economic times.



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