WASHINGTON (Reuters) - Japan called for further policy action to stabilize the financial system and the global economy, warning there was still risk of further market adjustments.

Traditional macroeconomic policies may not be enough to address the challenges posed by rapid increases in global capital flows, which boost the impact of market moves on the economy, Finance Minister Fukushiro Nukaga said.
“For instance, overshooting frequently occurs in financial markets, and we have not yet found definite answers on an appropriate policy response capable of preventing its negative effects,” he said in a statement to the International Monetary and Financial Committee.
Economic environments that have been accommodative for a prolonged time have also been behind the current financial market turmoil, Nukaga said.
Nukaga did not attend the meeting himself but made the remarks in a statement distributed at the IMFC meeting.
Such challenges reinforce the need for the International Monetary Fund to identify potential vulnerabilities in the world economy and cooperate closely with policymakers, he said.
The IMFC met a day after the Group of Seven industrial nations warned of challenges posed by global financial market turmoil and painted a bleak outlook for the world economy, describing it as facing a difficult period with weakening prospects.
Nukaga said world growth was expected to decline as substantial losses incurred by U.S. and European financial institutions hurt market functions, although emerging economies were likely to sustain robust growth.
On sovereign wealth funds, Nukaga said Japan recognized its increasing presence in the global market and supported the IMF’s action in formulating best practices in the area of governance.
He also expressed support for IMF quota reforms agreed upon by the body’s executive board, saying it reflected Japan’s view that quotas should better reflect each member's position in the world economy.
The IMF’s plan for overhauling its complex quota system, which still needs endorsement by member states, would boost the voting shares of emerging economic powers China, India and Brazil.
Tokyo has long called for an increase in quota shares for emerging Asian economies.