Currencies
The yen was volatile last week as two statements - first by Finance Minister Kiichi Miyazawa and then by Bank of Japan Governor Masaru Hayami -- contradicted each other. Miyazawa said he didn't see the then sinking value of the yen as a problem. In fact, some Japanese officials have welcomed the yen's recent drop - it sank to an 18 month low earlier in the week - because it may help the economy by boosting exports. Then Hayami stepped up and said the currency's value is too low. The yen obliged and increased in value. But Hayami wasn't through, later triggering a yen selling reversal when he suggested that central bank may increase the money supply. The tussle between the central bank and the finance ministry continues...

The euro seesawed last week when German retail sales unexpectedly declined for a third straight month in November, raising concerns about growth in the euro region's economy. (See indicator scoreboard below.) Signs of slower growth tend to weigh on a currency as it makes financial assets less appealing to investors. While the euro has gained 14 percent against the dollar since its record low in October on signs the U.S. economy is cooling faster than the euro region, an earlier stronger than expected U.S. retail sales report combined with the German figures will make traders cautious about buying euros. The euro's recent rally has come on the back of U.S. weakness rather than euro region strength, and more bad economic news out of the United States will be needed if the euro is to rise towards parity. Uncertainly about new Treasury Secretary Paul O'Neill's dollar policy also brought weakness to dollar. However, O'Neill told a Senate confirmation panel that he favored a strong dollar and couldn't "imagine why anyone would think the contrary."

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