China and Japan called for global cooperation yesterday after a financial market rout signaled fear that Europe’s debt crisis could spin out of control and the US economy may slide into another recession.
The comments from Washington’s two biggest foreign creditors pointed to growing concern of contagion as Asian stock markets tumbled following Wall Street’s steep dive a day earlier. European markets hit a 14-month low in early trading.
French President Nicolas Sarkozy was set to discuss financial markets with German Chancellor Angela Merkel and Spanish Prime Minister Jose Luis Rodriguez Zapatero later yesterday, Sarkozy’s office said in a statement.
In Tokyo, Japanese Finance Minister Yoshihiko Noda said global policymakers needed to confront currency distortions, the debt crises and concerns about the US economy.
“I agree that these subjects should be discussed,” he told reporters a day after Japan intervened on currency markets to sell the yen. “Each problem is important, but how to prioritize these issues is something to discuss from here on in.”
Japan sold the yen on Thursday to try to cap the currency’s rise, which puts its exporters at a competitive disadvantage. There was market talk that it had intervened again yesterday, although the currency bounced back quickly, which suggests Tokyo was not in the market. The yen has become a popular safe-haven bet as concerns about the US and Europe grow.
Chinese Foreign Minister Yang Jiechi (楊潔箎) said US debt risks were escalating and countries should step up cooperation on global economic risks.
Yang, who is visiting Poland, called on the US to adopt “responsible” monetary policies and protect the US dollar investments of other nations.
The US Federal Reserve holds its next policy-setting meeting on Tuesday and economists say there is little more it can do to try to spur growth. A flurry of weak economic data and Europe’s debt woes have fed fears of a fresh recession, triggering Thursday’s sell-off on Wall Street, which was the worst since the global financial crisis.
About US$2.1 trillion in market value was wiped off the MSCI All Country World Index this week as of Thursday’s close, Thomson Reuters Datastream showed, and that total looked set to rise yesterday as Asian and European stocks fell.
IHS Global Insight said there was now a 40 percent chance the US could slip into recession.
Lawrence Summers, a senior adviser to the US president until last year, argued in a Reuters column that there is a one in three chance of recession in the US.
After gold has more than doubled in price since the global financial crisis, many investors are having second thoughts about seeking refuge in the precious metal.
With investment options running out, funds are flooding into cash. Bank of New York Mellon Corp, citing an overwhelming influx of cash deposits from large clients in reaction to world economic events, said it would begin passing along some insurance fees on selected accounts that exceed a depositor’s prior monthly average.