THE yen captured market attention last week as a result of speculation over economic policy. On Thursday, Prime Minister Hosokawa unveiled a six trillion yen (about HK$464.10 billion) package designed to stimulate domestic demand in Japan.
Although Japanese financial markets were clearly disappointed by the package, (the Nikkei index has shed more than 500 points since the plan was announced), the yen gained ground against the dollar, ending the week at 104.42, an increase of almost two yen. Traders are likely to sell dollars again this week ahead of Prime Minister Hosokawa's visit to the US.
The deutschemark also suffered at the hands of the yen closing at 64.68 yen down from 66.6 at the start of the week. This aided the dollar against the deutschemark after the US dollar dipped to 1.59 deutschemark early in the week. German money supply figures for August are due for release this week and are expected to show growth of almost eight per cent.
Massive central bank intervention within the ERM would have inflated the figure, therefore, the market should not be too concerned that the aggregate remains well above the Bundesbank's target of 4.5 per cent to 6.5 per cent. Nevertheless, it could temporarily exert some downward pressure on the dollar.
Soft commodity prices and political unease will continue to weigh on both the Canadian and Australian dollars. The Canadian unit surged above 1.31 to the US dollar during the week but fell back to close at 1.3130. Canadian data releases show a decline inexport growth.
The Australian dollar hit a seven-year low of 64.30 US cents last week as the budget debacle raged on. Although the currency looks cheap, there is little potential for appreciation until the Keating administration reaches a consensus on the budget.
