Monday, March 31, 2003
The prospect of extended hostilities in Iraq awakened fears of a complicated and costly war and squashed the recent rally in world stock markets. This more pessimistic view also affected the value of the dollar, gold and oil. On the week, ten of the 13 indexes followed here sank. Only the Australian all ordinaries (up 0.8 percent), the Nikkei (up 1 percent) and the Topix (up 1.3 percent) increased on the week. The increases in the Nikkei and Topix can be attributed in part to end-of-fiscal-year machinations. Losses ranged from 0.6 percent (Singapore Straits Times) to 7.2 percent (Frankfurt DAX). With one day left in first-quarter trading, 12 of 13 indexes are below year-end levels with only the NASDAQ up on the year. (Be sure to read the April 2, 2003 Short Take, which will assess first-quarter equity performance.)
The Bank of Japan held an unscheduled policy board meeting Tuesday to deal with ongoing domestic economic problems and the possible impact of the Iraqi war. The emergency meeting was the first of its kind since the BoJ became independent of the Ministry of Finance in 1998. It also marked the beginning of Toshihiko Fukui's governorship. March 31st is the end of the Japanese fiscal year and the run-up generally plagues financial markets as market players and companies attempt to inflate earnings - especially those from abroad. The Bank decided to increase purchases of shares from banks by 50 percent, spurning calls from ruling party members to double purchases. The news was greeted with disappointment by BoJ watchers who were looking for dramatic action from the new governor. The Nikkei has fallen just under 13 percent since September 18th, when the central bank said it would start buying shares from banks in order to bolster their capital position. It has since bought about half of the ¥2 trillion of shares it planned to purchase through September.
However, limiting banks' losses from stock market declines won't reverse a six-year slide in bank lending that has deprived Japan of the fresh credit it needs to grow. Three recessions in a decade have left major banks saddled with an estimated ¥52.4 trillion of bad loans. The central bank said it would continue to purchase government bonds from lenders monthly. This is its main tool for spurring the economy after it lowered rates to virtually zero in March 2001.
Reality of war hits markets
