U.S., Japanese Officials Try To Calm Rattled Investors

Paulson, Omi say financial markets are healthy despite recent pullback.

TOKYO, March 5 (Kyodo) - Japanese Finance Minister Koji Omi and U.S. Treasury Secretary Henry Paulson on Monday tried to allay market concern over recent falls in global stock markets, saying the economies of both countries remain in good shape and that they are ''not worried about'' the recent market movements.

Omi told reporters after the meeting held at a traditional Japanese restaurant that the two financial leaders shared the view that the economies of their countries remain in good shape despite global stock falls.

The meeting of the two financial leaders came at a time when global stock markets have continued to plunge and the yen is strengthening against the U.S. dollar amid growing uncertainties over the outlook for the U.S. economy.

Omi also said he and Paulson agreed that movements in foreign exchange markets should reflect economic fundamentals but that they did not talk about specific exchange rate levels.

''We did talk about the stock prices and foreign exchange, but we agreed that the Japanese economy is on a recovery path with price stability and the U.S. economy is also in good condition,'' Omi said.

Paulson separately told reporters that the yen's exchange rate should be set by market forces.

''I mentioned that the yen is market-determined, the rates determined in an open marketplace as it should be,'' Paulson said.

Paulson also said that the United States is pleased with Japan's sustainable economic growth.

''The Japanese economy, the second largest economy in the world, is growing. Looks like you are leaving deflation behind, that is a very good thing for Japan and the rest of the world,'' he said.

The U.S. treasury secretary did not make any comment about the yen's sharp appreciation against the U.S. dollar, according to Omi.

Omi also said it is important for the two countries to keep in close contact with each other over issues surrounding North Korea's nuclear ambitions, including financial sanctions against the North.

But Omi and Paulson are believed not to have gone into any detail on the issue of North Korea as their meeting preceded a closely watched working group meeting on normalizing relations between the United States and North Korea, which will be held in New York on Monday and Tuesday.

Earlier in the day, Prime Minister Shinzo Abe met with Paulson and explained the economic reforms and growth strategies of his Cabinet, Japanese officials said.

Abe also told Paulson that Japan's economy is on a gradual recovery track, the officials said.

Tokyo stocks closed lower Monday for the fifth trading day in a row, with the key Nikkei Stock Average falling nearly 600 points to end at 16,642.25, their lowest level since Dec. 12. stocks in the U.S. are expected to open sharply lower.

The U.S. dollar fell to the lower 115 yen range Monday in Tokyo for the first time in three months as investors closed yen-funded carry trade positions to cover losses from stock market falls.

Some analysts speculate that the yen could further appreciate relative to the dollar as investors are likely to continue unwinding their carry trade positions after an interest-rate hike by the Bank of Japan in February.

In yen-carry trade, investors borrow yen funds at low interest rates and invest them in higher yielding assets denominated in dollars or other currencies.

Paulson is visiting Japan for two days through Tuesday as part of his trip to Asia that will also include South Korea and China, according to the U.S. Treasury Department.

In addition to Omi, Paulson is likely to hold separate talks with Bank of Japan Governor Toshihiko Fukui and other government officials during his stay in Japan.

Omi and Paulson last held talks during Omi's visit to Washington in January.

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