The global financial crisis is battering the Japanese stock market and threatening the real economy. The erratic Nikkei 225 index dipped below 7,000 at one point this week, the lowest in about 26 years, and the recent gains of the yen against the dollar and euro cast a dark spell over companies that underpin the Japanese economy with exports.

Prime Minister Taro Aso has ordered the government and ruling coalition to work out market-stabilization measures, including preferential tax measures for stock investors, tighter restrictions on short sales of stocks, an increase in government-backed bank recapitalization from the current ¥2 trillion to ¥10 trillion, and partial relaxation of capital-adequacy ratio rules for banks. But market players appear to have regarded these measures as insufficient. The government may have been too slow to act. It is urgent that it promptly implement steps that are effective in bringing calm to the market.

In an unusual move, the Group of Seven finance ministers and central bankers jointly issued a statement warning against "the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability." Although the higher yen means lower costs in importation of raw materials and merchandise, the rapid climb of the yen can severely hurt export-oriented Japanese firms.