By Blaine Harden and Howard Schneider
Washington Post Foreign Service
Friday, October 17, 2008
TOKYO, Oct. 17 -- Fear of a deep global recession washed over Asian and European markets Thursday, and the financial crisis continued to shake major institutions.
Following Wednesday's sell-off on Wall Street, stocks in Japan fell more than 11 percent. Prime Minister Taro Aso said the recently announced U.S. bank bailout was "insufficient" to restore investor confidence, though his office later backed away from those comments.
Across Asia, stocks fell nearly 9 percent, while major European exchanges dropped more than 5 percent. In early trading Friday, Japanese markets rose slightly, with stocks up about 1 percent.
South Korea's economy, the fourth-largest in Asia, has emerged as the most vulnerable in the region. The country's currency, the won, fell 9.7 percent Thursday, its biggest one-day percentage decline since the 1997 Asian financial crisis. Stocks in Seoul slid 9.4 percent.
Seven Korean banks are at risk of having their credit ratings cut, Standard & Poor's said. Pressure is building in Seoul to follow the example of governments around the world and guarantee bank loans and deposits.
The Bank of Korea announced Friday that it will change its rules to make it easier for banks to swap local currency for dollars. Local banks have struggled in recent months to find dollars to service external loans and to pay off foreign investors who have been pulling out of the country's stock market.
In Tokyo, Aso criticized U.S. government efforts to revive the American economy and banking system. "Since it was insufficient, the market is again falling sharply," Aso told a parliamentary committee Thursday, as the benchmark Nikkei average skidded to its worst one-day decline in 21 years.
On Friday, the prime minister's office sought to play down Aso's remarks. "The prime minister's statement was on a certain view within the market" that is demanding more government measures to calm the crisis, said Osamu Sakashita, a spokesman. "The Japanese government, for its part, highly regards the measures the United States is taking resolutely for the resolution of the current situation."
Aso's remark was the first high-level Japanese criticism of the United States' role in the global crisis. In office for less than a month, Aso is struggling to contain a deepening recession while preparing his ruling Liberal Democratic Party for a national election, which could take place as early as next month.
Japan is flush with cash and has the capacity to help revive the global economy. The Finance Ministry and the central bank control about $950 billion in foreign exchange reserves. An additional $14 trillion is on deposit in the country's banks.
Finance Minister Shoichi Nakagawa said last weekend that Japan would contribute to an international bailout package for developing countries, led by the International Monetary Fund. Details of the package are still to be worked out.
Japan's parliament approved a $17.9 billion domestic stimulus plan Thursday, but Aso has said that more government spending would be needed to revive the economy. His advisers began working this week on a larger stimulus package.
Meanwhile, in Zurich, Swiss authorities announced a bailout of banking giant UBS, and Credit Suisse said it had raised new capital with an investment from the government of Qatar. European markets tumbled, with London's benchmark FTSE 100 index down 5.4 percent.
In Dubai, a financial hub of the Arab world, the electronic tickers running across the lobbies and skyscrapers of financial firms eschewed the usual stock quotes. Instead, they quoted assurances by Dubai's ruler that the emirate's economy and banks were sound.
Nevertheless, Dubai's stock market fell again Thursday, bringing its two-day loss to 13 percent. Other Persian Gulf markets fell from 1.2 to 5.7 percent.
Also Thursday, Indian equity markets fell 2 percent after a two-day rally, with software and energy stocks among the worst hit. India's central reserve bank injected more than $25 billion into the financial system Wednesday by slashing the cash reserve that banks must hold from 9 to 6.5 percent.
Correspondents Rama Lakshmi in New Delhi and Ellen Knickmeyer in Dubai, United Arab Emirates, contributed to this report. Schneider reported from Washington.