Japanese PM warns of economy risk

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Japanese Prime Minister Yasuo Fukuda has warned of growing risks to the world economy in a speech at the World Economic Forum in Davos, Switzerland.

He said there was no need for excessive pessimism, but that action was needed.

Mr Fukuda said the issue would be discussed at a meeting of the Group of Seven leading industrialised nations in Tokyo next month.

His words come after turbulence in the financial markets sparked by fears the US could be headed towards recession.

"Downside risks on the world economy are on the rise against a backdrop of US subprime issues and a record rise of oil prices," he told business leaders and economists attending the annual conference.

"There is no need for excessive pessimism. At the same time however, we should respond quickly and should implement necessary measures," he added.

Persistent problems

Mr Fukuda said that he welcomed the efforts made by financial and monetary authorities around the world, adding that "authorities in major countries will analyse factors behind the recent turmoil in financial markets and rapidly seek medium to long term responses".

The problem cannot only be addressed by monetary policy, even tough monetary policy is very important. We have to look at the whole picture Dominique Strauss-Kahn, International Monetary Fund His comments were echoed by the head of the International Monetary Fund, Dominique Strauss-Kahn, who was also talking at the Davos meeting.

"Whatever the answer is on a recession, what is clear is there will be a serious [US] slowdown and it needs a serious response," he said.

Mr Strauss-Kahn said that central bank policies and interest rate handling were not enough to remedy the global economic problems.

"We are facing global imbalances and the subprime crisis is only part of it. We are facing also currency imbalances, surpluses rising in some countries... all those imbalances have to be addressed," he said.

"The problem cannot only be addressed by monetary policy, even tough monetary policy is very important. We have to look at the whole picture."