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TOKYO: Japanese Prime Minister Taro Aso said on Tuesday that Asia's largest economy was sound but warned that the global financial crisis threatened to sap demand for Japanese exports.
"The financial system in Japan itself is sound," Aso told a parliamentary committee.
But the global crisis "will surely affect the real Japanese economy," Aso said. "We must carefully monitor the situation and take appropriate action when needed," he said.
Japan's stock market suffered further heavy losses Tuesday, with the Nikkei-225 index dropping below the key 10,000 points level briefly for the first time in more than four years.
The slide came as the yen continued to rise against the dollar and the euro, making Japanese exports - already wobbly due to the global slowdown - less competitive overseas.
Aso said that indicators of the US economy were "falling across the board."
"This will surely affect Japanese exports. It will also affect Chinese exports. And when that happens, it will affect Japanese exports to China," Aso said.
The United States and China are the two largest commercial partners for Japan, whose recovery from recession in the 1990s was largely driven by exports.
Japan's economy is again teetering on the verge of recession due to the global slowdown and tepid consumer spending.
But Kaoru Yosano, the minister for fiscal and economic policy, said that the rise in the yen reflected the relative strength of Japan's economy.
"The Japanese economy is going through global financial turmoil, but it is fundamentally firm and healthy," Yosano told a news conference.
"I would say there is no factor for us to get depressed about," he said.
Finance Minister Shoichi Nakagawa said he looked forward to discussing the situation with fellow finance ministers from the Group of Seven rich nations when they meet in Washington on Friday.
"It will give us an opportunity to have earnest discussions with our counterparts as to what we can do to ensure an economic recovery," Nakagawa said.
- AFP/yb
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