By Anne D. Picker, International Economist, Econoday
Monday, May 5, 2003

If April was a "war month", then data in May should give a better picture of the post-war mood. In the meantime, the dollar took it on the chin last week, sinking to a four-year low against the euro. Release after release told us what we already knew about the U.S. economy - businesses and consumers were in a state of suspended animation awaiting the beginning then the end of hostilities. Despite the paralysis, equity indexes followed here had a good April with the exception of those in Asia where SARS turned things upside down. Equities continued their winning streak into at least the first two days of May. Only one index followed here was down on the week, the Australian All Ordinaries which slipped 0.7 percent. The remaining indexes were up anywhere from 1.5 percent (Canadian S&P/TSX Composite) to 5.7 percent (Singapore Straits Times). Several indexes even managed to poke their heads above their year-end 2002 mark!

The Bank of Japan eases money supply
On Wednesday the Bank of Japan's Policy Board increased its reserve target for current account deposits to ¥27 trillion ($226 billion) from the previous target of ¥22 trillion. The BoJ said economic uncertainties in both Europe and the U.S., along with continued Japanese stock market weakness, were behind the move. The Bank also repeated that it would provide liquidity as needed beyond its current target levels to ensure stability in the financial markets. Policymakers are trying to find new ways to channel money to companies despite a zero interest rate policy for the past two years. But investors said pumping more money into a banking system clogged by an estimated ¥52.4 trillion of bad loans will do little to turn the tide.

The central bank, in its twice-yearly economic outlook, said it expects a moderate economic recovery this fiscal year. Board members had a median forecast of 1 percent growth in the fiscal year that started April 1st. The Bank reiterated that there is considerable uncertainty about U.S. and European growth prospects. The U.S. is Japan's biggest export market. The BoJ is also worried about the effects of SARS on Asian economies, which buy two fifths of Japanese exports.

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