Japan to take crisis action as bank shares tumble, yen surges

Source: Agencies  |   2008-10-27  |     ONLINE EDITION

JAPAN today outlined steps to ease strains on its banks, as Tokyo stocks hit a 26-year low on fears that lenders will need billions of dollars to boost capital, and as the yen rose despite a G7 warning of excess volatility.

Investors dumped Mitsubishi UFJ Financial Group and other major Japanese banks, on concern that their heavy exposure to domestic equities could trigger the kind of massive losses that tore through Wall Street but have so far skirted Japan.

The Nikkei closed 6.4 percent down to 7,163, hitting its lowest closing level since October 1982.

Prime Minister Taro Aso said the government would expand a scheme that gives banks access to public funds and also strengthen regulation on the short-selling of shares.

Aso has also said a state body should be used to buy shares from banks, and that limits on bank recapitalizations should be raised, Economics Minister Kaoru Yosano told reporters.

The prime minister also called for extending tax relief on income from stocks and dividends, Yosano said.

Yesterday, Yosano said that a newly announced bank bailout scheme should be increased several-fold to nearly US$110 billon.

The measures underscore the difficulties now facing lenders in the world's No.2 economy, which at first appeared to have avoided the credit crisis, allowing them to invest in overseas rivals.

Tokyo's benchmark Nikkei share average briefly dropped as low as 7,141 today, its lowest since 1982.

The benchmark has lost about half of its value so far this year -- falling by nearly a third this month alone -- as a rise in the yen and a weakening outlook for the economy has curbed appetite for Japanese stocks.

The losses, which drove more risk-averse investors away from currencies such as Australian dollar and back into the yen, overshadowed Group of Seven warnings today that the yen's sharp swings posed a threat to financial and economic stability.