Tokyo - Japanese Prime Minister Taro Aso on Monday ordered the government and ruling parties to immediately implement measures to stabilize the stock market.

"Stock prices greatly influence the real economy," Aso said at a press conference. "In that sense, we have to consider various measures and implement them."

The government was expected to implement emergency measures such as a larger government fund to recapitalize ailing banks and help for employees to purchase stock in their companies, Aso said.

The premier made the announcement as Japan's benchmark Nikkei Average hit a 26-year low, falling more than 6 per cent to close at 7,162.9, and as the yen soared to a 13-year high against the US dollar.

Japan requested seven of the world's leading industrialized countries release an emergency statement, expressing concern over the yen's strength against other major currencies. The Group of Seven (G7) also pledged to cooperate on stabilizing the global financial system.

"We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability," said the statement released by the G7, which consists of Britain, Canada, France, Germany, Italy, Japan and the United States.

While Japanese Finance Minister Shoichi Nakagawa said he was "very much worried" about the fall in stock prices, he added that the Japanese financial system was in better condition than those in the United States and Europe.

But the minister said the government needs to rebuild investors' confidence in the market and to implement emergency measures, which would be part of the stimulus package.

The government might endorse stricter rules on stock short-selling in early November, Nakagawa said.

In short-selling, shares are borrowed and sold on speculation that their prices would fall so that investors can buy back the shares at a lower price later, which drives down the markets.

The government was also planning to boost bank recapitalization by extending a law that allows the government to inject public funds into regional banks and other financial institutions. The law expired in March.

The revised law would increase recapitalization of a bank to 10 trillion yen from 2 trillion yen, media reports said.

Shares of Japanese mega-banks fell sharply during Monday trading as media reports said they were considering capital increases.

Mitsubishi UFJ Financial Group saw its shares drop 14.64 per cent, while Mizuho Financial Group fell by nearly 15 per cent and Sumitomo Mitsui Financial Group also dropped by more than 11 per cent. (dpa)