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b B O A R D OF • O V W M O m DIVISION OF INTERNATIONAL FINANCE OF T H E F E D E R A L RESERVE SYSTEM May 1, 1961 H. 3 No 6 CAPITAL M A R K E T DEV NTS A B R O A D Japan Five Charts on Financial Markets Abroad I. Japans Money and Capital Markets During March There was a general reduction in money and capital market rates in Japan on April 1 when the government lowered the rates on a broad variety of deposit, savings, and trust accounts/ the rates on long-term bank loans, and the effective yields on various bonds and debentures • This action, which has been contemplated for "'several months, was motivated by the government's long-run policy of bringing the level of interest rates closer to those in Western money markets and also helping to implement the plan for doubling Japanese national income in the coming decade. Most short-term bank loan rates were reduced earlier in January following the reduction in the Bank of Japan discount' rate on January 26. In late April the authorities also took steps to encourage nonresident purchases of Japanese securities. They announced that on May 1, 1961, special arrangements would be made so that non-residents can repatriate proceeds from security sales immediately. In effect, this will create a system of "securities yen" (similar to the United Kingdom "security sterling" arrangement), under which non-residents are allowed to seli Japanese securities to other non-residents for payment in foreign currencies5 tiie securities yen rate will be determined by market factors and will not be held at the rate for the spot yen by official intervention. The authorities also announced that the minimum time period for repatriation of funds invested by non-residents in Japanese securities at the official rate of. exchange would be reduced from four to two years. The inflow of foreign short-term capital remained at relatively high levels during the first quarter, more than covering the large.trade deficits in January and February. In March there was an improvement in the trade balance. International reserves rose $50-60 million monthly during the quarter. t Money Market o Money market conditions were eased early in the, year as the seasonal return-flow of banknotes, bolstered bank liquidity. After the call loan rate was lowered from 8.395 to 8.030 at the end of January, money market rates subsequently firmed. Bank of Japan loans rose ¥185 billion during February-March, only partly easing the impact of the large Treasury cash surpluses of ¥787 billion in February and ¥135 billion in March. NOT FOR PUBLICATION DECONTROLLED AFTER SIX MOUTHS = 2 — Following a reduction in the level of Japanese holdings of Eurodollars by $35 million in November and December I960, the level of holdings rose $75 million in the first two months of 1961. Preliminary reports indicate a continued, though more modest rise, in March. The transfer of Eurodollar funds into convertible yen accounts has slowed in recent months. The covered interest rate differential has narrowed both from reduced commercial bank lending rates in late January and some rise in the cost of forward foreign exchange cover0 The cost of Euro-dollars in recent months has been quoted at li.75 per cent for three-month contracts and 5»5 per cent for six-month contracts Other Japanese short-term borrowing abroad has been rising since the autumn of I960. Bond Marketo In addition to reducing the interest rates for deposits and trust accounts on April 1, 1961, the Japanese government, its control over public and private bond issues, lowered the effective on various bonds and debentures by 0.2 to O.ij. of a percentage point as below. bank through yields indicated Bond and Debenture Yields (per cent per annum) Highest quality corporate debentures Bank debentures % a) interest bearing b) discount basis Public corporation debentures Local government bonds Old Rate New Rate 7.831 7.610, 6.61+3 7.U08 olt23 7.300 6.225 .310 olil8 Difference 7.313 7.096 .217 7.720 7.35b «366 Yields on long-term and short-term government securities remained uncli-r^ed at 60U32 and 6.023 per cent per- annum respectively. Yields on bonds and debentures have changed only slightly since mid-1957. The volume of new issues of bank and public corporation debentures accelerated late in I960. The total volume of bank, industrial, public corporation debentures and local government bonds was up 37 per cent in I960 oyer the level a year earlier. -• In January 1961 four large security houses placed on the market bond investment trust shares which have proven very popular because of the prospective high rate of yield. Sales by the four companies have been approximately double the original volume anticipated. Issues of industrial debentures, which ranged from ¥15 to ¥20 billion monthly in I960, jumped to ?58 billion in January 1961. Interest Rates. On April 1, 1961, the Japanese government lowered the structure of interest rates for a broad variety of deposit and trust accounts as well as for most long-term bank loans. "While short-term bank lending - 3 rates were not changed, it is likely that these steps will contribute further to the decline in the composite rate fqr bank loans and discounts which began in August I960. The reduction in rates effected most deposit and sayings accounts .as indicated below. (See Chart U. ) Bank Deposit Rates (per cent per annum) Fixed term deposits; 3 months 6 months 1 year Installment savings Ordinary deposits Deposits at notice Deposits for tax payments Other deposits Three-month interbank deposit rate , Old Rate New Rate lw3. 5.5 6.0 U.o 2.56 2.92 3.29 2.92 U.o 5.o 5.5 3.9— ; 2.19 a 2.56 2.92 2.56 0.3 0.5 0.5 0.1 0.37 0.37 0.37 0.37 5.8k 5.U8 0.37 I4.2 lu7 -5.0 5.5 3.6 I4.08 5-0 0.3 0.3 0.5 0.5 0.36 0.12 Difference Postal Savings Rates Fixed-amount deposits over 6 months over 1 year over 18 months over 2 years Ordinary savings Installment savings New one-year savings 14.5 5.0 5.5 6.0 3.96 h.2 — . - The rate for two-year trust accounts was lowered from 6.8 to 6.3 per cent and for five-year accounts from 7.5 to 7.1 per cent. Industrial and long-term - •* bank loan rates were reduced from 9.125 to 8.7 per cent per annum or by 0.1*25 per cent. Prior to the April 1 reductions, bank lending rates since August I960 have trended down, partly in response to, a lowering of the Bank of Japan discount rate from 7.3 to 6.935 per cent on August 25, I960 and from 6.935 to 6.570 per cent on January 25, 1961. The composite rate for loans and discounts of all banks declined from 8.220 per cent in August I960 to 8.077 per cent in December I960. On January 30, 1961, in response to the reduction in the Bank of Japan discount rate a few days earlier, the commercial bank rate for loans on bills was reduced from 8.030 to 7.665 per cent. Rates on other types of loans and discounts were reduced by 0.2 to 0.1* percentage points. •? h- Bank Loans and Pis counts. Bank loans and discounts continued to rise at a somewhat accelerated pace in the fourth quarter as indicated below. The increase in the fourth quarter was 6.9 per cent compared to 6,0 per cent in the same period a year earlier» January 1961 loans and discounts were up 0.5 per cent compared to 0.3 per cent a year earlier. Increase in Loans and Discounts: All Banks • " I In billions of yen) ! ' 1958 I II III IV 125 11*6 2# 283 2.5 2,8 h.k 5.1 1959 JL 1960 168 157 281 38U 2.9 2.6 U.6 6.0 225 227 395 531 3.3_ 3.2 $.h 6,9 Stock Market. Following a 6 per cent dip in stock prices during the last half of February and the first three weeks of March, stocks resumed their general rise in late March and on April 19 reached a new all-time high. Since mewhato The Dow Jones average of 22$ issues on then the market has eas"*April 26, 1961, was ?1,6>-. /dch was 21 per cent above the year1 s low on January h and 2U9 per cent above the level in early 1958 when the current upward movement in stock prices began. The February-March decline in prices was apparently due in part to a worsening in the international trade balance during the first two months qf the year. The recovery of prices in late March and April was helped by an improved trade balance in March and reports of an economic upturn in the United States. (See Chart 5«) Dow Jones Average of 225 Stocks Tokyo Stock Exchange Feb. 22 Mar. 1 8 15 22 29 21,563 1,537 1,517 1,193 ' 1,181 1,577 Apr, 5 12 19 26 1,590 1,631 l,67L 1.658 I960 High ¥1,321 Low I 869 1961 High 11,666 Low ¥1,367 Foreign Exchange, During March the yen remained strong as the trade balance improved over January-Feloruaiy levels and the influx of Euro-dollars and other convertible currencies continued. Early in April, 'however, the yen weakened as the demand for foreign^exchange to meet trade payments increased significantly. From a level of ¥358*90 per dollar in March, the spot rate rose to ¥361,10 per dollar at mid-April and then strengthened in the week ending April 21. The forward discount of the yen against the U«S. dollar narrowed sharply in mid-April but began to widen again later in the month. Customer's T 0 T 0 Exchange Rates of Bank of Tokyo in Tokyo Date March ApriiL Yen-dollar spot middle rate 3-month forward middle rate 358.90 358.90 358.90 ' 358.90 358.90 360.55 360.95 360.75 361.30 361.30 359.20 361.50 361.75 361.50 7 1U 361.10 21 : 360.20 Forward discount in per cent per annum 1.81* 2.28 2.06 2.67 2.67 2.56 0.72 1*1lU Far Eastern Section. II. Five Charts on Financial Markets Abroad Chart Chart Chart Chart Chart 1 - Interest Arbitrage US/Canada 2 - Interest Arbitrage New York/London 3 - Interest Arbitrage Frankfurt/New York Short-term Interest Rates 5> - Industrial Stock Indices ' ' CKort 1 C A N A D A - UNITED STATES THREE-MONTH TREASURY BILL RATES RATE DIFFERENTIAL A N D FORWARD C A N A D I A N DOLLAR SPREAD IN FAVOR OF CANADA v\ + /V W I T H FORWARD EXCHANGE- COVER NIT INCENTIVE IN FAVOR OF CANADA + • : i A: INTEREST ARBITRAGE, NEW YORK / Friday LONDON figure: 3 — M ONTH 1REASU IY BILL RATES I \ LONDCIN " ~%L—A y 1 k ,1 /" z \ t V HEW YORK Vt v; - K l l 11 i i i i I I I I V I I - I I. I I I I I I I I RATE DIFFERENTIAL AND 3 - M O NTH FORWARD STERLING SPREAD IN FAVOR OF LONDON T RATE DIFFERENTIAL WITH FORWARD EXCHANGE COVER 2 T J INTEREST A R B I T R A G E / N E W Y O R K / f R A N K F U R T . 3 - M O N T H TREASURY BILL RATES A N D G E R M A N Y 3 . M O N T H B A N K L E N D I N G RATES Friday figure* . Per c e n t p e r L E N O I N O RATE - l / ~ \ /Vh RATE D I F F E R E N T I A L A N D F O R W A R D D E U T S C H E M A R K I L E N D I N G RATE KIAA/ / V* RATE D I F F E R E N T I A L W I T H F O R W A R D E X C H A N G E C O V E R !v\ * Note: Special Forward dollar $ (.ellher Hal or premium D « ipot) available to German commercial bonki. $ a S H O R T - T E R M INTEREST RATES 4 1 and Switzerland (3-monlh depoiil role). INDUSTRIAL STOCK INDICES * .1958 400 350 300 150 SWITZERLAND / 150 100 50 300 250 200 150 100 io Nota: Japan: Index ol all ilocki Iraded on Tokyo exchange.
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