By Yoko Nishikawa
The credit crisis has sent stock markets tumbling worldwide, economies are weakening and central banks are cutting interest rates while currencies swing, creating a tense backdrop for Group of Seven finance ministers and central bankers meeting in Tokyo over the weekend.
The world economy is facing a "more challenging and uncertain environment" than when they last met in October, it said.
This follows European Central Bank President Jean-Claude Trichet on Thursday softening his anti-inflation stance and stressing the high levels of uncertainty caused by financial market turmoil and risks to the euro-zone economy.
HEALING DIVISIONS
Last month saw 1.25 percentage points in Fed rate cuts plus a $150 billion fiscal package to tackle credit problems from the subprime mortgage crisis. Whether this is enough to rescue the U.S. economy and avert a worldwide economic slump remains very much in question.
"I still believe that we are going to continue to grow, although at a slower pace for a while. But the risk is very much to the downside," he told Japan's NHK television.
Rather, financial upheaval was in the forefront of ministers minds as they arrived for the Tokyo G7 meeting.
COORDINATION SOUGHT
"Prompt and coordinated action by central banks has helped to ease the immediate problems. Yet the full impact of the subprime crisis on the financial sector is yet to be known," he wrote in the letter seen by Reuters.
The Financial Stability Forum, a group of central bankers and other regulators studying the subprime mortgage problem and market upheaval, is due to deliver an interim report to the G7 policymakers.
"I was pleasantly surprised on reading the declaration of Mr. Trichet," said French Economy Minister Christine Lagarde.
"Coordination of efforts may soften the consequences of such crises, first of all a coordination of efforts between central banks on their refinancing rates because this is the key factor supporting the financial system," Kudrin told reporters in Moscow before heading to Tokyo.
Whether the emerging economies can come through the U.S. shakeout relatively unscathed will be on the agenda when G7 officials meet with finance ministers of China, Indonesia, South Korea and Russia for dinner on Saturday.
(Additional reporting by Sumeet Desai, Brian Love, Gernot Heller, Gavin Jones in Tokyo and Gleb Bryanski; writing by Stella Dawson))
