By Anne D. Picker, International Economist,Econoday
Monday, January 28, 2002

Equities indexes followed here were choppy last week. A deluge of earnings reports conveyed a stronger than expected picture - but with noteworthy exceptions in the United States and abroad. Both Fed Chairman Alan Greenspan and ECB Chairman Wim Duisenberg offered their spins on their respective economies. Market players were left with the feeling that there will be little in the way of interest rate reductions when both central banks meet during the next two weeks. Of the indexes followed here, only the Japanese Nikkei and Topix and the Hong Kong Hang Seng were down on the week.

Japanese banks suffered more blows when rating agency Moody's lowered its outlook for 10 institutions from stable to negative and on news that corporate bankruptcies rose to a near postwar record last year. This only underlined what most analysts, and the U.S. government, see as fundamental impediments to sustained economic recovery. U.S. Treasury Secretary Paul O'Neill, in Tokyo for an Afghan conference, urged Japan to tackle domestic obstacles to growth and not rely on a weak yen to export its way out of trouble.

Moody's said given the stressful corporate environment, banks were increasingly unlikely to regain their financial health without a significant injection of public funds. Bank exposure to failing companies is being compounded by the expected end of blanket guarantees on deposits on March 31 (the end of the Japanese fiscal year). The government move would leave more than 10 million yen in deposits vulnerable in the event of a bank collapse. The banks have been a ticking bomb for many years now. To protect themselves, depositors are shifting their funds from time deposits to current accounts, which will be fully insured for another year. They also are purchasing gold bullion.

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