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As the 225-issue Nikkei average briefly tumbled below 8,000 on Monday before finishing at a fresh 20-year low, top Cabinet members began talking about government plans to counter the seemingly relentless fall in domestic share prices.

Economists, however, say alternatives to measures already announced — structural and tax reforms, and the Bank of Japan’s injection of money into banks — are limited for now.

Amid growing fears that a looming military attack in Iraq may hurt the global economy, the benchmark Nikkei closed Monday down sharply at 8,042.26. The drop shocked domestic companies, insurers and banks, which hold a large number of one another’s shares.

The drop hits their investment portfolios at the worst possible time — as the March 31 book-closing approaches.

“We want to take necessary steps together with the BOJ,” Prime Minister Junichiro Koizumi said.

“What we can do for now is take monetary measures,” Chief Cabinet Secretary Yasuo Fukuda said. “That would be a core step.”

Heizo Takenaka, economic and fiscal policy minister, also said the government is ready to counter any impact a war in Iraq will have on Japan’s economy.

Responding to pleas from ruling coalition members for urgent steps to rescue the stock market, Takenaka was quoted by Shinzo Abe, deputy chief Cabinet secretary, as saying: “We are preparing economic steps in case of war in Iraq. We need some kind of crisis-management measures.”

Meanwhile, Finance Minister Masajuro Shiokawa told reporters he had asked the Tokyo Stock Exchange to investigate the reason behind the sharp fall, which he called “abnormal” earlier in the day.

Shiokawa also said Japan is prepared to take action in the foreign exchange market to devalue the yen, which has gained around 3 percent against the dollar since the start of the year.

A rise in the yen usually hits the stock prices of top exporters such as Sony Corp., as a stronger yen erodes profits made overseas.

Economists, however, said the government remains essentially powerless to help boost the stock market before March 31 because the 2003 fiscal year budget is still being discussed at the Diet and the government is unable to outline fiscal spending plans.

One possible measure would be to raise people’s expectations by announcing the possibility of increasing the BOJ’s purchase of stocks from banks, said Atsushi Takeda, senior economist at Mizuho Research Institute.

Meanwhile, senior lawmakers of the Liberal Democratic Party have agreed to urge the government to delay imposing a limit on Japanese banks’ shareholdings to help alleviate selling pressure.

The banks will be required to limit the value of their shareholdings in other firms to an amount less than their primary capital beginning in September 2004.

The lawmakers, including Taro Aso, LDP policy chief, and Hideyuki Aizawa, head of the party’s antideflation panel, hope to delay the start date by two years, LDP officials said.

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