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Malaysian Prime Minister Mahathir Mohamad on Tuesday urged Japan to continue to play a leading role in Asia through continued investment and stressed that a new international financial system to stabilize currencies is needed.

In a keynote speech at a Tokyo symposium sponsored by the Institute for International Monetary Affairs, Mahathir stressed that his country still believes there is much to learn from Japan. “Japan must rebuild its economy by employing all its assets, and providing the leadership all of Asia needs. Japan has the means to resuscitate East Asia,” he said, calling especially for more investment from Japan.

Investment would shore up the economy of a recipient nation and as a result enable it to become a better buyer of Japanese products, he said. At the same time, he reiterated his concern over short-term capital flows from investors that he said were leading to excessive volatility in the exchange markets of Asia regardless of relatively solid economic fundamentals.

A new international system is needed to stabilize exchange rates and reduce fluctuations in currency markets, which led to the recent Asian crisis, Mahathir said. He added that in an effort to avoid as much as possible the negative effects of currency volatility, Malaysia is working to reduce the extent to which the dollar is used for trading, and instead is using the currency of the trading partner.

During the same seminar, Stanley Fischer, first deputy managing director of the International Monetary Fund, said that while currency movements in Asia have been excessive in recent months, there should not be an international system that strictly binds exchange rates.

Eisuke Sakakibara, vice finance minister for international affairs, meanwhile noted that Japan was prepared to provide, via deregulation in such sectors as financial services, an environment that will lead to a more internationalized yen.

On the issue of further stimulating the Japanese economy, Fischer called for more up-front tax cuts. But Sakakibara said that while tax system reforms will be undertaken, there is no need to secure a net reduction in income tax payments.

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