U.S. and Japanese Stocks Soar While War Uncertainty Fades

As war with Iraq becomes more certain, the dollar rose strongly March 17 on the New York Stock Exchange (NYSE). Investors rallied with the expectation that uncertainties may soon be resolved. A similar rush was also seen in Tokyo on March 18, but the strong dollar and rising stock prices slightly shrunk with spreading concerns about a possible terrorist attack on the U.S. and rapidly changing international affairs.

The dollar jumped to 1.0591 and closed at 1.0630 against the euro, a 2-month high, on NYSE on March 18 when President George W. Bush gave his ultimatum speech. On the Tokyo market, it traded at 1.0643.

The dollar was up 0.19 yen from last weekend to 118.51 yen on the New York market. It remained strong enough to jump to 118.97 yen before falling to 118.60 yen on the Tokyo market. This is due to concerns over terrorist attacks, analysts said.

With the rising hope that the war will be brief, stocks soared on Monday’s New York Stock Exchange. The Dow Jones Industrial Average climbed 281.65 points, or 3.58%, to 8,141.36. The tech-laced Nasdaq Composite Index jumped 51.34 points, or 3.83% to 1,397.67. Trading volume also sharply increased. A positive aspect was expectations of fading uncertainties, rather than the war itself.

Japan`s Nikkei Index on March 18 rose 167.23 points to close the morning session at 8,038.87. In the afternoon, however, it gained only 82.82 points, or 1.05%, to close at 7954.46, with the caution that uncertainties are still not fully resolved.

According to U.S. financial experts, America’s Federal Reserve (FRB) will not cut interest rates at the meeting of Federal Open Market Committee on March 18 but is appeared to trim the rate immediately if the war with Iraq worsens. They added that FRB is likely to cut interest rates for federal funds, currently at 1.25%, to zero in a worst case scenario.

FRB officials said that Alan Greenspan is considering the purchase of long-term Treasury bonds to supply the market with dollars.

As traders bet that any war would be short and would not disrupt the flow of oil, the price of oil fell to a fresh low since February 10. The price of West Texas Intermediate (WTI) for April lost 45 cents a barrel, or 1.3%, to 34.93 dollars on the New York Mercantile Exchange compared to last weekend. The International Energy Agency (IEA) made clear that it will release oil reserves if war breaks out.

Gold for April soared 8.70 dollars per ounce in early trading but ended flat to close at 337.20 dollars, 60 cents up from last weekend. It slightly gained on Monday’s Asian markets.

konihong@donga.com parkwj@donga.com