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The government may work out fresh measures to bolster Tokyo stock prices that have been plunging in step with New York markets, Finance Minister Kaoru Yosano hinted Tuesday.

“The fallout of falling stock prices is greater than we expected. We are witnessing many negative wealth effects with impaired assets held by banks and insurance firms,” Yosano said, describing continued declines in stocks as “not desirable at all.”

Yosano said he would closely monitor the Tokyo Stock Exchange on Tuesday after New York stocks tumbled Monday to their lowest level in 11 years and nine months, before deciding how the ruling parties and government should respond.

Yosano said the government will consider ways to boost stock prices as proposed Monday by Fujio Mitarai, chairman of the Japan Business Federation (Nippon Keidanren).

The leader of the country’s most influential business lobby urged the government to use public funds to buy stocks in a price-maintaining operation.

“A supplementary budget worth about ¥25 trillion to finance rapid-acting measures should be compiled and implemented” after the fiscal 2009 budget is passed, Mitarai said.

He proposed the figure because the gap between the nation’s potential and actual growth rates in terms of gross domestic product was estimated at minus 4.3 percent, or ¥20 trillion, in the October-December quarter, with the negative figure indicating excess supply.

The Nikkei average fell 107.60 points, or 1.5 percent, Tuesday, with investor sentiment battered after the Dow Jones index closed Monday at its lowest level since May 1997 on growing pessimism about the future of the U.S. economy.

Chief Cabinet Secretary Takeo Kawamura said a quick recovery in U.S. stock prices is indispensable for boosting Japanese stocks, and pledged that the government will implement stimulus steps by enacting budget bills to remove the sense of uncertainty from the economic outlook.

In a related move, the Bank of Japan resumed Monday its purchase of stocks held by commercial banks as part of its efforts to help strengthen their financial base and encourage them to lend more to businesses amid the global credit turmoil.

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