The Group of Seven finance chiefs agreed in a teleconference call to work together to deal with the problems hitting Spain and Greece, Japanese Finance Minister Jun Azumi said on Tuesday.
Jun Azumi added that he had told his G7 counterparts that Japan was concerned about the impact on the domestic economy of the Yen's rise and falls in Japanese share prices.
He urged the G7 to reaffirm its agreement made last September that excessive currency swings hurt the economy and that they will cooperate as needed on foreign currencies.
Likewise G7 agreed to help Spain after Madrid claimed that credit markets were closing to the Euro zone's fourth biggest economy.
Treasury Minister Cristobal Montoro sent out the dramatic distress signal in a radio interview about the impact of his country's banking crisis on government borrowing, saying that at current rates, financial markets were effectively shut to Spain.
The risk premium says Spain doesn't have the market door open, Montoro said on Onda Cero radio. The risk premium says that as a state we have a problem in accessing markets, when we need to refinance our debt”.
Spain which enjoyed rapid growth after it joined the Euro at its launch in 1999 is beset by bank debts triggered by the bursting of a real estate bubble, aggravated by overspending by its autonomous regions.
The risk premium investors demand to hold Spanish 10-year debt rather than the German equivalent hit a Euro era high of 548 basis points on concerns that Spain's fragile banking system and heavily indebted regions will eventually force it to seek a Greek-style bailout.
Montoro said Spanish banks should be recapitalized through European mechanisms, departing from the previous government line that Spain could raise the money on its own and prompting the Madrid stock market to rise.
The European Central Bank holds its monthly rate-setting meeting on Wednesday and European Union leaders meet on June 28-29 to discuss their strategy for overcoming the two-year-old crisis which has already seen Greece, Ireland and Portugal forced to accept international bailouts.
Investors have fled peripheral Euro zone sovereign debt for the relative safe haven of German Bunds and US and British government bonds amid worries about Spain's banking crisis and fears that a June 17 Greek election could lead to Athens leaving the Euro, setting off a wave of contagion around the euro area.
Spain will test the market on Thursday by issuing between 1.24 billion and 2.48 billion dollars in medium- and long-term bonds at auction.
Emilio Botin, chairman of the nation's biggest bank, Banco Santander admitted Spanish banks needed about 40 billion Euros in additional capital, adding that there is no financial crisis in Spain. Montoro said the figures were perfectly accessible”.