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G7's readiness to 'stabilize' markets reiterated by Japanese official

Section: Daily Dispatches

What's the difference between "stabilizing"
and "rigging"? Probably just which side of
the trade you're on.

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By Natsuko Waki and Toni Vorobyova
Thursday, February 28, 2008

LONDON -- The Group of Seven industrialized nations is closely monitoring the global financial market turmoil and stands ready to take action to enhance stability in the market, Japan's top financial diplomat said on Thursday.

Naoyuki Shinohara, vice finance minister for international affairs, also cast doubt on calls to establish a Japanese sovereign wealth fund, saying the country's foreign reserves are not a pure investable asset given its huge budget deficit.

G7 finance chiefs warned in Tokyo this month that credit turmoil could still unhinge the global economy and pledged a plan of action for restoring markets to financial health.

But they steered clear of any joint plan to safeguard world growth from the ravages of the credit debacle.

"The world economy confronts a more challenging and uncertain environment than when we (the G7) met in October. But we also shared the view that economic fundamentals remain pretty solid with regards to the global economy," Shinohara said in the Euromoney Japan Debt Capital Markets Forum in London.

He said the G7 would continue to monitor developments in the world economy and financial markets closely and its member countries are ready to take action both individually and collectively.

"We have made it clear that we stand ready to take any action necessary to enhance stability in financial markets," Shinohara said.

He also said that the Japanese economy is expected to slow in the short term, but growth would be sustained in the medium term, with stable price conditions.

Shinohara brushed off calls to invest Japan's $996 billion reserves more actively to pursue returns through a state-run investment arm.

"Our basic policy on reserve management is that we will make investments on the principles of safety and liquidity, but within those principles we will try to make investments profitable," he said.

"In a country like Japan, where a market economy is the base of the economy, I am not sure whether it is the role of the government to establish an investment company to make investments."

The Ministry of Finance, which is in charge of managing Japan's FX reserves, the world's second largest after China, opposes the idea of a wealth fund as it fears potential losses on riskier investments.

"Japan has a huge government deficit. ... So the foreign reserve is not a pure asset, it has its own liability side," Shinohara added.

State-run funds in China, Singapore, and the Middle East have made high-profile investments in recent months, buying up stakes in major banks hit by the credit crunch.

Japanese lawmakers have only just begun talking about setting up such a fund but their talks have gained momentum since ruling Liberal Democratic Party politicians began debating the issue last week at a new panel.

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