Japan Downplays Need for G7 Action on Rates, Currency

By Keiko Ujikane

Oct. 8 (Bloomberg) -- A Japanese Finance Ministry official downplayed the need for Group of Seven nations to take joint action on currencies or interest rates to stem the deepening global financial crisis.

Finance ministers and central bankers won't necessarily coordinate action just because they are meeting this week, the official told reporters today on the condition of anonymity. Joint action on currencies and rates should depend on market and economic conditions of each country, the official said.

Officials from the G-7 nations meet on Oct. 10 in Washington amid mounting speculation policy makers may agree on joint action to stabilize world financial markets. Federal Reserve Chairman Ben S. Bernanke yesterday signaled policy makers are ready to lower interest rates as the credit freeze worsens the outlook for U.S. economic growth.

European Central Bank President Jean-Claude Trichet last week said his board discussed cutting interest rates, while Bank of Japan Governor Masaaki Shirakawa said yesterday policy action should depend on each nation's situation.

The dollar has weakened more than 10 percent against the yen this year as investors bet the Fed will resume cutting rates. The euro has dropped about 17 percent against the yen this year as deteriorating credit markets prompted European governments to pledge bailouts for troubled banks.


Currencies

The official wasn't sure if currencies will come up in discussions at the G-7 meeting, adding that nations will focus on recent turmoil in global financial markets.

The recent movements in the stock markets are very volatile and nations at the meeting will discuss what they can do about the global rout, the official said, adding that tension in global markets is rising and that the turmoil is hurting the world economy.

U.S. stocks fell yesterday, sending the Standard & Poor's 500 Index below 1,000 for the first time since 2003. Japan's Nikkei 225 Stock Average fell 9.4 percent today, the third- biggest drop on record.

The effect of the global financial crisis on Japanese banks has been very limited, the official added. Whether to use taxpayer money to boost banks' capital is up to each nation, the person said.

The G-7 includes Canada, France, Germany, Italy, Japan, the U.K. and the U.S.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net