The world’s financial markets have reacted calmly to the optimistic picture of the global economy painted by financial leaders from the Group of Seven industrialized nations.
At their meeting in Halifax, Nova Scotia, late last week, the G7 finance ministers and central bank governors said growth in their economies has strengthened and should continue to consolidate throughout the year.
Despite the broadly optimistic assessment of world economic prospects, market players remain unmoved.
With a series of encouraging economic reports going largely unheeded, New York share prices hit new post-Sept. 11 lows last week.
Tokyo stock prices were also languishing at a depressed level before rebounding strongly on Tuesday.
Investors have switched away from dollar-based assets amid fears of renewed terrorist attacks on the U.S. and worries about U.S. corporate accounting practices aimed at inflating earnings.
The burst of the information technology bubble has meanwhile sent Wall Street share prices reeling, leaving investors with huge losses.
Washington apparently remains obsessed with terrorist attack worries, and its hard line against Iraq and protectionist trade policies have prompted investors to shun dollar-based assets. The weak dollar and New York share price falls can be taken as warning signals against a recent U.S. policy shift.
Much of Japan’s recent economic growth has also run out of steam.
Enticed by the government declaration that the economy is bottoming out, foreign investors have stepped up purchases of long-neglected Japanese stocks at the expense of New York stocks.
The resultant rise in the yen’s value relative to the dollar prompted the Bank of Japan to step in repeatedly to keep it from rising further.
Foreign investors had been counting on a positive impact on stock prices from Japanese tax reforms, but they are now having second thoughts amid speculation that Prime Minister Junichiro Koizumi’s administration is turning toward tax increases.
With fears lingering over further BOJ intervention, the yen appears likely to remain caught in a relatively narrow range between 122 and 126 to the dollar in the near term.
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