GUATEMALA CITY -- Japan's Nikkei average is below 8,000 for the first time in 20 years, putting it 80 percent below its 1989 high. A fall in the Nikkei below 7,500 could mean that some Japanese banks would not meet their international capital adequacy requirements.
At a time like this, leaders must avoid the temptation to pursue policies that yield short-term political benefits while leading to long-term economic losses. Alas, few politicians have the guts to accept short-term political costs in exchange for long-term economic gain.
And so it is that Japan's leaders are showing inclinations to intervene even more in over-regulated markets with coordinated interventions to offset selling in the stock market. In a misguided move last year, regulators set new restrictions on short-selling. Now, pressures are likely to be put on the Bank of Japan to purchase more bank-held stocks to offset falling share prices and ease the impact of market fluctuations on banks' capital bases.