iv>There seems to be no end to the drop in stock prices in the world markets. Every effort should be made to remove anxieties in the markets not only in the United States--the epicentre of the recent financial turmoil--but also in Japan.
On Tuesday (Jan 15), stock prices on the New York stock markets plummeted again, triggered by the announcement by Citigroup Inc, the largest US bank, that it booked a net loss of US$9.83 billion in the October-December quarter due to write-downs for subprime mortgages.
In addition, the US Commerce Department reported on the same day that retail sales fell in December. News of the weakened retail demand fueled fears of a slowdown in the US economy, accelerating declines in stock prices.
As a result, the US dollar slipped briefly below the 106 yen line (98 US cents) on Wednesday in Tokyo, increasing the yen's appreciation against the dollar. Also, the Nikkei Stock Average plunged 468 points from Tuesday's close to 13,504, the lowest close since October 2005.
Major US financial institutions, including Citigroup, have raised capital from a batch of investors, including a governmental fund in the Middle East.
But distrust among market players will be hard to quell as they are anxious about how much further losses will balloon and whether adequate capital to stabilize the financial system has been secured.
Split Diet another risk factor
Many observers say it will take more time to discern the entire picture of the financial losses incurred due to the subprime mortgage mess and reassure the market.
The US Federal Reserve Board is likely to cut interest rates further. Also, the US government is examining measures to boost the economy. How far those approaches can properly support the real economy in the United States may serve as a key to deter chain-reaction stock price falls for the time being.
In the Tokyo markets, uncertainty over Japan's economic prospects is also prevailing. The US economic downturn and the yen's appreciation against the dollar may hurt corporate performances, while price hikes due to high crude oil prices may prompt a drop in personal spending. In addition to such concerns, political turmoil in Japan is amplifying the market's anxiety.
Under the divided Diet, in which the Democratic Party of Japan and other opposition parties control the House of Councillors, and the Liberal Democratic Party and New Komeito have a majority in the House of Representatives, it is feared that bills to revise the Special Taxation Measures Law, whose aims include maintaining the current gasoline tax rate and keeping intact the current corporate tax break for capital investment by small and midsize companies, may not be enacted during the ordinary Diet session this fiscal year.
Onus on opposition
There are also fears that the Diet stalemate may make it difficult to appoint a successor to Bank of Japan Gov. Toshihiko Fukui, whose term will expire in March, meaning that Japan could find itself without a financial playmaker.
If such a situation develops, it is inevitable that Japan's economy will enter a period of turbulence as it is now in a delicate stage. Rumors that such a scenario could occur in March are spreading in the market.
The government and ruling parties must closely watch trends in the real economy and come up with necessary countermeasures swiftly.
Meanwhile, the opposition parties must also take careful note of the tense economic situations at home and abroad.
It would be no good if the opposition camp were to oppose--for political ends--whatever measures the ruling camp proposed, only to end up triggering a recession.
