Asia crisis offsets Japan's successes

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The Independent Online
JAPANESE shares fell further yesterday as a sell-off in other Asian stock markets and bearish comments by one of the country's leading bankers fuelled worries over the region's economic turmoil.

The Nikkei index of 225 leading Japanese stocks suffered its biggest fall in three weeks, losing 2.23 per cent to close at 15,321.03, as investors took fright at falls in other Asian markets and the weakness of the yen against the dollar, which rose as high as 139.67 yen, its strongest level for almost seven years.

Toru Hashimoto, chairman of Fuji Bank, said yesterday that he expected economic turbulence in Asia to offset the beneficial effects on Japanese economic growth of a government fiscal stimulus package.

"My view is the Japanese economy will grow by about one per cent this year as opposed to the two per cent forecast by the government," he said in Vienna, where he was attending an international monetary conference. "This will add 1.5-two per cent to GDP growth but the turmoil in Asia has a negative impact of about two per cent. Therefore the positive and negative factors will cancel each other out."

If he wins re-election in elections to be held on 12 July, Prime Minister Ryutaro Hashimoto is expected to introduce a programme of tax cuts designed to stimulate economic activity.

Meanwhile Lawrence Summers, the US deputy Treasury Secretary, also speaking in Vienna on Monday, said: "Growth and reflation should now be Japan's central economic priority."

Mr Summers said it was also essential to address problems of the financial sector to restore confidence and avoid a credit crunch.

He urged the Japanese government to move faster in closing down insolvent banks and adopt a more determined approach to making asset markets more liquid.