Prime Minister Junichiro Koizumi on Tuesday urged his Cabinet to monitor financial markets carefully and cooperate closely with the Bank of Japan to prevent any disruptions as a result of the looming war in Iraq, government officials said.

Koizumi told his ministers that they need to monitor foreign-exchange markets, stock markets and oil prices.

The Finance Ministry may launch a dollar-buying spree worth 1 trillion yen, sources said.

The ministry is ready to engage in large-scale market intervention to stem the yen’s rise, should it indeed jump against the dollar in the wake of a U.S.-led offensive in Iraq, they said.

Financial Services Minister Heizo Takenaka later indicated the government plans to keep the nation’s stock markets open even after a U.S.-led attack on Iraq begins.

“It is the basic premise of markets that one can make deals anytime,” Takenaka said. “We want to closely observe the situation.”

He hinted, however, that the Financial Services Agency will consider strengthening restrictions on price fluctuations.

Under current rules, trading is automatically halted if a stock priced at less than 100 yen rises or falls by 30 yen or more.

In the wake of the Sept. 11, 2001, terrorist attacks in the United States, the Tokyo Stock Exchange halved the daily allowable fluctuation to 15 yen.

Takenaka said that although price ranges should be determined by market forces, “We want to respond flexibly in case of an emergency.”

At a separate news conference, Finance Minister Masajuro Shiokawa pledged to work closely with the BOJ to ensure financial stability in the event of a war.

“We will consult with the BOJ to handle the financial situation and the issue of foreign exchange,” Shiokawa said.

He denied that the Finance Ministry will take specific steps to boost falling share prices. “We will not take any direct measures (to prop up the stock markets), but we will keep observing them closely,” he said.

Shiokawa also said the ministry would like the BOJ to further ease its grip on credit, though he said such a move is a decision the central bank must make for itself.

Meanwhile, officials at the Ministry of Economy, Trade and Industry, said they will monitor trends in crude oil prices and will release reserves if necessary.

Economy, Trade and Industry Minister Takeo Hiranuma said Saudi Arabia and Qatar have assured Japan of sufficient oil supplies if war breaks out in Iraq.

Hiranuma told reporters Tuesday evening that he held talks earlier in the day by telephone with ministers in charge of oil and energy issues in the two Middle East countries and that they promised efforts to provide Japan with adequate oil.

The situation regarding oil is not in a critical state, Hiranuma said, but added, “We should not feel relaxed and must make efforts (to ensure a stable supply of oil to Japan).”

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