By Hideyuki Sano
TOKYO (Reuters) - The Group of Seven rich nations will send a strong message this week on stabilizing the global financial system, Japan said, but a senior official did not confirm whether G7 talks would cover joint interest rate cuts.
Creeping doubts over whether G7 leaders can offer decisive measures to tackle the credit crisis rattled markets across Asia on Wednesday.
Japan's Nikkei share average plunged 9.4 percent -- it's biggest one-day fall since the 1987 stock market crash.
The dollar hit a six-month low below 100 yen, while the British government unveiled a 50 billion sterling bank rescue package.
Japanese officials said they would press hard at a G7 meeting in Washington for governments to quickly recapitalize troubled banks, using public funds if necessary, to contain market turmoil that has destroyed banks from Wall Street to Reykjavik.
Japan's top government spokesman said he expected the G7 financial leaders to send a strong message on stabilizing the global financial system at their meeting on Friday.
Asked if the G7 would discuss a coordinated rate cut and intervention in currency markets in Washington, a senior finance ministry official said such action would depend on economic conditions.
The Bank of Japan has been alone among the major central banks in not signaling a desire to lower interest rates so far, with both the U.S. Federal Reserve and the European Central Bank seen cutting rates to try to kick start the global economy.
Bank of Japan Governor Masaaki Shirakawa distanced himself from the clamor for global rate cuts on Tuesday, saying any policy easing would need to suit domestic economic conditions.
With its interest rates closer to zero than any other central bank in the Group of Seven rich nations, the BOJ could lose room for maneuver by cutting interest rates too early.
Yet the BOJ could be pushed into a corner as fear of global recession escalated, shattering Asian stock markets.
The slide in Japan's Nikkei, on top of a suspension of trading on Jakarta's bourse and big falls elsewhere, comes amid fears of a recession that would decimate the profits of big firms such as Toyota Motor Corp .
"Markets are getting skeptical about whether the G7 could come up with any effective measures to deal with the financial crisis," said Masafumi Yamamoto, the head of FX strategy for Japan at Royal Bank of Scotland.
The crisis triggered by falls in U.S. house prices that began over a year ago has quickly snowballed into the biggest global financial crisis since the 1930s, threatening to bring down the entire global financial system.
Japanese officials, who fought a drawn-out banking crisis on their own in the 1990s, said they would press other G7 leaders for quick bank recapitalization -- something they had failed to do themselves, prolonging Japan's economic malaise.
"Markets are now concluding that this crisis will not be solved until banks are recapitalized by public funds," said Seiya Nakajima, chief economist at Itochu Corp.
"I think it's Japan's obligation to persuade other G7 members to inject public funds into banks for all its political hardship." (Additional reporting by Yasuhiko Seki and Yuzo Saeki; Writing by Dayan Candappa; Editing by Rodney Joyce)
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