Monday, May 26, 2003
Bank of Japan eases
The Bank of Japan Policy Board increased its reserve target for current account deposits to as much as ¥30 trillion ($256 billion) from the previous maximum of ¥27 trillion at the conclusion of its two-day meeting last week. The Bank said that the economic uncertainties in Europe and the United States combined with stock market weakness in Japan and the SARS epidemic contributed to their decision. The BoJ also included their oft-repeated statement that it would provide liquidity as needed beyond its current target levels to ensure stability in the financial markets.
The Japanese economy struggled to make headway against strong headwinds in the first quarter. GDP growth was flat on the quarter. Exports, which account for 11 percent of Japan's GDP, took the biggest hit in the first three months of the year. And analysts warn that SARS is likely to hit exports to its Asian neighbors again in this quarter. The strong yen has also kept exports at bay as prices of Japanese products rose, making them more expensive in their major markets.
Bank of England's split decision
The Bank of England's Monetary Policy Committee was split over its interest rate decision, with bank insiders out-voting external members who wanted an immediate cut in official interest rates, according to the minutes of the May meeting. The external members placed more emphasis on the outlook for growth, which they said was forecast to be below potential throughout the two-year forecast horizon. The five BoE insiders on the MPC, however, placed more weight on the outlook for inflation. The sharp fall in sterling and the rally in equity markets imply stronger prospects for both activity and inflation. Most members thought that it would be prudent to wait to see whether sterling stayed at its new lower level and to wait for further evidence on the evolution of business and consumer confidence after hostilities in Iraq.
Equity markets spent the week struggling to recover from a miserable Monday. Indexes sank because of comments by Treasury Secretary John Snow at the G-7 meeting. He seemed unconcerned about the dollar's sharpening drop, saying that the decline was "fairly modest." On the week, equity indexes followed here were mixed. Asian stocks were up while European and British stocks were down. Stocks in the Americas were split - the Dow and Nasdaq were down while the S&P/TSE composite and Bolsa were up.
Looking for direction
