By Anne D. Picker, International Economist,Econoday
Monday, March 5, 2001

The Nikkei paid more attention to Alan Greenspan's testimony than it did to the Bank of Japan's decision to lower interest rates. But then again, other markets were also paying close attention to Greenspan. Virtually all were down because the chairman did not grant the market's latest wish for an immediate rate cut.

Overseas profit repatriation just prior to the end of the Japanese fiscal year on March 31 generally boosts the yen. Not so last week. The swell of bad economic and political news was too much to keep the yen afloat. And the tumbling Nikkei only exacerbated the yen's problem. The Nikkei fell to a 15 year low last week and a further drop will make major business failures, perhaps among big banks and insurance companies, more likely.

The European Central Bank kept its benchmark lending rate at 4.75 percent, waiting for more signs that the rate of inflation has peaked before lowering borrowing costs. The decision sets it apart from those in Britain, Canada, South Korea, Japan and Australia, which all reduced interest rates after the U.S. Federal Reserve sliced its key rate one percentage point in January to 5.5 percent. The ECB insists that a United States inspired slowdown is unlikely to occur in the European Monetary Union because most of its trade is now with each other. However, the heavy investment flows from Europe to the United States are bound to have an impact, as earnings shrink. A plus in this respect for the EMU is that individual investors are in the minority, unlike the United States.

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