World must work to calm down panic

TOKYO: Japan, the United States and European nations have taken concerted measures to end the turmoil striking financial and capital markets around the world after simultaneous terrorist attacks on the U.S. last Tuesday.

U.S. and European monetary authorities slashed interest rates on Monday, when the New York Stock Exchange reopened six days after the terrorist strikes forced it to shut down. This was followed by a similar action taken by the Bank of Japan. On Tuesday, the central bank decided to lower its official discount rate and adopt an additional measure for monetary easing.

To the relief of many people, the U.S. has averted a strongly feared stock market crash. In early-week trading, the Japanese and European stock markets closed stronger. Still, the Bank of Japan's latest easy-money policy alone is far from enough to quell fears of a global recession.

Japan, the U.S. and Europe have yet to reach a crucial stage in their desperate efforts to head off a global financial panic. Japan should continue playing a role in averting a global economic crisis, while also joining hands with other nations in presenting a united front against acts of international terrorism. At the same, the Bank of Japan needs to further relax its grip on credit.

The NYSE closed its Monday trading with a sharp decline. However, drops in the Dow Jones industrials and the Nasdaq composite index were no greater than initially anticipated. The Dow and the tech-laden Nasdaq fell within the 6 percent and 7 percent range, respectively.

This was largely due to interest rate cuts by the U.S. Federal Reserve and the European Central Bank, a move that helped dispel a sense of uncertainty held by market players.

During a policy board meeting on Tuesday, the Bank of Japan decided to expand its quantitative credit easing one day earlier than initially planned. The central bank did what it should have done under the circumstances. There had been concerns that a rapid surge in the value of the yen and a sharp drop in Japanese stock prices could continue if Japan, the U.S. and Europe took no coordinated action to allay fears of market players.

The Group of Seven industrial powers have provided an abundant money supply in the market, based on a statement issued at a meeting of G-7 finance ministers and central bank governors last week. This has been complemented by concerted measures by the G-7 nations to lower interest rates. All this has broken the chain of falling stock prices at the G-7 countries for the time being.

However, U.S. consumer spending, which functions as an engine for the country's economy, is probably bound to wane due to the aftereffects of the terrorist attacks. Initially, there was speculation that the U.S. economy might start recovering late this year or early next year. Under the circumstances, however, that prospect seems unlikely.

Many analysts have said that the U.S. is about to go into a recession. There are still concerns that the current state of affairs could trigger a simultaneous global recession.

Among others, the Japanese economy appears to be headed in the direction of a deflationary spiral, posing a threat to the global economy. On Tuesday, the Bank of Japan pledged to ensure that amount of money in current accounts held by financial institutions at the central bank -- currently 6 trillion yen -- would rise. However, the bank stopped short of announcing how much this rise would total. The Bank of Japan's action is inadequate in this regard.

The central bank also has decided not to introduce an inflation target under the present circumstances. However, such a target should be set as soon as possible. For its part, the government should work with the central bank in overcoming the crisis facing this country.

The Bank of Japan decided not to recover yen funds used to intervene in the market by selling yen and buying dollars on Monday. This tactic should be kept in place with the aim of braking the yen's rise against the U.S. currency and further encouraging monetary easing.

It is also essential for Japan, the U.S. and Europe to continue coordinated efforts to stem a global financial panic.

-- The Yomiuri Shimbun