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Editorial: Minimize downturn caused by rising yen, plunging stock prices

  • March 10, 2020
  • , The Japan News , 2:21 p.m.
  • English Press

The rise of the yen and the fall in stock prices are accelerating. The government and the Bank of Japan must make efforts to stabilize financial markets by more closely cooperating with relevant countries.


The Nikkei Stock Average dived Monday, with a drop of more than 1,200 points recorded at one point, and closed below the benchmark of 20,000 points for the first time in about 14 months.


Major stock indexes in Asia and Europe have also fallen sharply because of the expansion of the outbreak of the new coronavirus. The price of crude oil has plummeted as well on the futures market, where the inflow of speculative money is seen. Purchases of major countries’ government bonds have increased, pushing down their long-term yields.


This indicates that investors are withdrawing money from certain financial products like stocks to avoid the risk of losses and directing the money to government bonds, which they consider safer.


One factor behind the market turmoil is the increasingly murkier outlook for the U.S. economy — which has served as the driving force of the global economy — due to the rapid growth of the number of infected people in the country.


On the Tokyo foreign exchange market, moves to sell the dollar and buy the yen have intensified, strengthening the value of the Japanese currency to the ¥101 level against the dollar for the first time in about three years and four months.


The dollar-selling tendency will probably remain for the time being because of the lowered interest rates in the United States, where the U.S. Federal Reserve Board has started interest rate cuts. If the yen remains strong for a prolonged period, it could squeeze the business performance of Japanese exporters.


Support firms’ cash flow


Regarding the gross domestic product during the October-December period in 2019 in real terms, Japan’s growth has already declined at an annualized rate of 7.1%. It is highly likely that the January-March period in 2020 will also see negative growth, and the difficult situation will surely continue.


It is reasonable to place top priority on containing the spread of infections. On the other hand, the government is required to calm market turmoil and minimize adverse effects on the real economy as much as possible.


People are refraining from going out for nonessential and nonurgent purposes and voluntarily restricting more and more events, among other moves. The most serious problem is that there is no telling how long it will last.


Demand dropped sharply for hotels, restaurants, airlines and other industries. Strengthening immigration controls has also significantly reduced human exchanges among countries.


The flow of goods is stagnating as well, which will hit not only major firms but also unavoidably impact small and midsize subcontractors.


To stop the spread of corporate bankruptcies, the government must first provide support for companies’ cash flow through the measures such as emergency loans and deferment of debt repayments.


Finance ministers and central bank governors of the Group of 20 major economies issued an emergency statement last week, saying, “We are ready to take further actions, including fiscal and monetary measures, to support the economy and maintain the resilience of the financial system.”


The G20 countries should discuss possible policies and steadily implement them while sharing information.


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