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Thursday, Nov. 6, 2008
Great Depression different
Mitigating factors, official actions in play for current crisis: Shirakawa
In a bid to stabilize financial markets, Bank of Japan Gov. Masaaki Shirakawa denied Wednesday that the current global economic crisis is similar to the Great Depression of the 1930s.
"Jolts that we have never experienced since the 1930s are currently ravaging the international financial and capital markets," the governor said during a speech at a Tokyo business seminar.
The tension in the markets drastically intensified after the collapse of Lehman Brothers Holdings Inc. in September, he added.
But Shirakawa stressed that the current situation differs from the 1930s meltdown because the measures taken by authorities this time around are very different, he said.
Shirakawa noted that the foreign-exchange mechanism during the 1930s crisis was based on fixed exchange rates, whereas the current one is based on floating rates.
"We now have a savings insurance system as a safety net, and also steady free-trade systems," he said, citing other differences.
Shirakawa, however, acknowledged that the BOJ is not entirely optimistic about the economic outlook.
Negative reactions between the financial system and the real economy have been multiplying, while their outcome has yet to be seen, he said.
"Since such high growth rates have continued for so long, the adjustment cannot be easily avoided," Shirakawa said. "We must absolutely prevent (the world economy) from going deeper into adjustment or turmoil."
For the time being, the BOJ will watch the movements of the U.S. and European financial systems, international financial and capital markets and downside risks to the economy, he said.
The BOJ will try its utmost to maintain the stability of the market by closely coordinating with other central banks and making appropriate adjustments, he added.
Touching on the BOJ's move Friday to cut its key interest rate to 0.3 percent from 0.5 percent, Shirakawa acknowledged that both pros and cons were discussed during the day's Policy Board meeting.
Although the BOJ eventually decided on a rate cut in line with moves by the central banks of other industrialized countries, Shirakawa indicated that the BOJ doesn't see any more room for further rate cuts.