Political unease tests investors’ resolve
	International Perspective – May 27, 2002
	Anne D. Picker, International Economist, Econoday

Last Week’s Highlights

Investors felt queasy last week, running for cover from terrorism warnings and ongoing problems in the Middle East and Kashmir. Safe-haven assets were in demand, except for the dollar that was hit by continuing negative sentiment. Foreign exchange investors slugged it out over the dollars’ value, especially against the yen. Even the Bank of Japan was forced to intervene. When the dust settled, the dollar was down and so were equities indexes followed here with the exception of the Japanese Nikkei and Topix.

To no one’s surprise, the Bank of Japan left monetary policy unchanged. Expectations are building that the worst of Japan's recession may be over, thanks to a pickup in exports, especially to the United States. But declining consumer prices remain a critical concern, raising more government calls for further monetary easing despite interest rates that are hovering near zero. The Bank has pledged to stick to its zero-rate policy until consumer prices stop falling, which could be years away.

Investors got a look at growth in the two biggest EMU member countries. The conclusion: growth remains sluggish at best. Germany, after two negative quarters, managed to crawl out of recession and post a 0.2 percent quarter-to-quarter gain in first quarter GDP (solely on a pick up in exports). France grew 0.4 percent on the same comparison. Since the beginning of last year, France has seen quarterly growth alternate with quarterly decline. Britain, not an EMU member, managed to escape negative growth but was still stagnant in the fourth and first quarters. All this means is that the United States, despite its problems, continues to outperform other major economic powers.