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Although calm has returned to the Tokyo stock market, share prices remain at a depressed level.

The ruling coalition’s victory in last month’s Upper House election gave Prime Minister Junichiro Koizumi a mandate to push ahead with his economic reform initiative, but investors remain unconvinced.

While government officials have not publicly focused on day-to-day developments in the market, the serious impact stock market volatility could have on the real economy suggests they cannot continue to remain aloof very much longer.

There is little doubt that the Koizumi administration faces a rough road as the economy visibly worsens.

Japan pledged at last month’s Group of Seven summit in Genoa, Italy, to drag the economy from its slump and return it to a successful track.

Domestically, the Koizumi administration is committed to painful economic reforms and must deliver on its pledges without delay.

While there is little dispute that restructuring will have a serious deflationary impact on the economy in the near term, the country has committed itself to solid growth in its gross domestic product.

The Koizumi administration faces a difficult task in reconciling these two differing policy objectives, a problem compounded by slower-than-expected U.S. economic growth, which is adding to concerns about economic conditions in Japan.

Steel, paper-pulp and other manufacturers have just begun working off their stockpiles of unsold products, and the manufacturing sector’s problems may soon spread to other elements of the economy.

With these obstacles in mind, the Koizumi administration must present both short- and long-term policy objectives in clear and easy terms.

While economic reform cannot be accomplished overnight, it must be undertaken regardless of how long it takes.

The worst possible scenario for the economy would be for the government to abandon the reform process entirely due to a failure to achieve harmony between short- and long-term policy measures and a consequent further economic decline.

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