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D I V I S I O N OF I N T E R N A T I O N A L F I N A N C E B O A R D OF ( O V B R N O R I H. 13 October 13, 1965. No. 217 CAPITAL MARKET DEVELOPMENTS ABROAD I„ II. III. I. Japan Nine Charts on Financial Markets Abroad Latest Figures Plotted in H. 13 Chart Series Japan: Money and Capital Markets in August-September With domestic interest rates continuing to ease in Japan, it now appears that Japan will not be able to float this year the full $100 million in bonds which the U. S. has exempted from the Interest Equalization Tax. The Japanese would reportedly have to pay about 7 per cent for U. S. capital at this time and this is regarded as too high. A prospective $50 million (DM 200 million) issue in Germany has also been postponed indefinitely, largely because of the currently high interest rates in Germany. Fortunately for Japan, the excellent export performance in recent months has reduced somewhat the need for additional foreign capital. According to preliminary data, Japanese borrowing in t h e U. S. rose $60 million in June, but declined $43 million in July. The large rise in June resulted partly from Japan's second bond issue this year in the U. S. The decline in July was due primarily to a reduction in short-term claims on Japan. (See Table 1.) Table 1. Japan: Short- and Long-term Borrowing in the U. S. (in millions of U. S. dollars) Change during yr. Short-term claims—/ Long-term claims 1.' TOTAL Securities — / TOTAL 1/ 2/ a/ b/ j)/ 1964 1964 II III 1962 1963 212 50 431 175 626*/ 181_k/ 229 _62 69 14 24 26 262 606 806 291 83 50 I Change during period 1965 IV I II Apr. May June -1 44P/ _ 4 - 42/ -46P/ _j:/ 402/ -432/ 57 42 14 _7 -29 7 383 99 21 -22 3 141 200 0 0 _0 _0 0 _0 23 _23 _0 403 806 806 291 83 50 383 99 44 1 3 20 60£/ Bank-reported liabilities to the U. S. New security flotations. Includes $144 million newly reported in December. Includes $45 million newly reported in December. Preliminary. NOTE: Data on short- and long-term claims since early 1962 have recently been revised substantially by the U. S, Treasury. OFFICIAL USE ONLY (Decontrolled after 6 months) July 0 -432/ -2 OFFICIAL USE ONLY Maximum authorized rates that Japanese foreign exchange banks may pay on Euro-dollars continued to decline in September, but then increased early in October. Between June and September, rates for deposits of over one year fell from 6.0 to 5.5 per cent. (See Table 2). Table 2. Effective: Japan: Maximum Authorized Rates on Euro-dollar Deposits 6/16/65 7/14/65 8/2/65 9/3/65 9/9/65 4,375 5,125 5.25 5,375 6,0 4.375 4.875 5.125 5.5 5.875 4.375 4.75 5.0 5.375 5.875 4.375 4.75 4.875 5.25 5.625 4.25 4.5 4.625 5.125 5.5 Less than 30 days 1 - 3 months 3 - 6 months 6 - 1 2 months 1 year and over 10/5/65 4.25 4.625 5.0625 5.25 5.5 Japan r s balance of payments improved in August and September as international reserves rose $19 million, Exports increased dramatically in August to break the previous month's record trade surplus. However, the yen continued to remain relatively weak in the foreign exchange market through mid-September. On the domestic side, money market conditions remained relatively easy. Interest rates declined further in August and September; on August 31 call loan rates fell below the previous lows set last June. The average rate of interest on commercial bank loans and discounts fell again in July. Bank credit in June expanded at a lower rate than a year earlier. In July, however, it expanded a shade more than in July of last year. The stock market rallied from its July 12 low, and by September 9 the Dow-Jones average had risen 25 per cent. Money market. Money market conditions continued to remain relatively During July there was a slight contractionary impact easy in July and August. from developments as a Bank of Japan credit expansion of ¥102 billion failed to completely offset the contractionary impact from net Treasury receipts of ¥101 billion and an expansion in bank notes in circulation of ¥5 billion. During August the contractionary impact from net Treasury receipts of ¥130 billion was more than offset by the expansionary effect from a ¥93 billion rise in Bank of Japan credit and a ¥45 billion decrease in bank notes in circulation. Interest rates. At the end of August call loan rates were cut again to the lowest levels since 1956 „ Rates were reduced by 0.365 percentage points twice in June, and again by this amount on August 31. The rates then remained unchanged through most of September. (See Table 3). Rates were reportedly reduced in late August in the expectation of a further easing in the money market in connection with heavy Government subsidy payments for rice. OFFICIAL USE ONLY -3- OFFICIAL USE ONLY Table 3. Japan: Average Call Loan Money Rates in Tokyo (per cent) Overnight J / Unconditional — ^ Over-month- July 31 6.205 6.570 7.300 August 7 14 21 28 6.205 6.205 6.205 6.205 6.570 6.570 6.570 6.570 7.300 7.300 7.300 7.300 September 4 11 18 25 5.840 5.840 5.840 5.840 6.205 6.205 6.205 6.205 6.935 6.935 6.935 6.935 1/ 2/ 3/ For settlement on the following day. Repayable at a day's notice. Repayable at a day's notice in the following month. The average rate of interest on commercial bank loans and discounts fell again in July to 7.78 per cent from 7.83 per cent in June and 7.99 per cent at the end of last year. Bank loans and discounts. Bank credit in July was up by 1.2 per cent, just above the 1.1 per cent rate in July last year. The increase in securities holdings in July was 1.3 per cent, whereas a year earlier there had been no change. Loans increased by about the same rate as a year earlier, but bills discounted increased at a considerably lower rate. Deposits were down by 0,1 per cent in July, compared with an 0.2 per cent decline in July 1964. The proportion of bank loads and discounts extended for purchases of equipment in June and July remained at the 17.4 per cent rate established in May. This ratio compares with the recent low of 17.0 per cent last December. In both July and August, Bank of Japan operations were expansionary. (See Table 4). Net purchases of securities in July were ¥39 billion, less than the ¥ 6 0 billion level of July 1964. Loans were much higher, rising by ¥63 billion in July compared to a ¥16 billion increase a year earlier. In August the Bank sold (net) ¥2 billion in securities, in contrast to net purchases of ¥59 billion a year earlier. Loans in August expanded at a rate well above a year earlier, increasing by ¥94 billion as against an increase of ¥55 billion in the earlier period. OFFICIAL USE ONLY OFFICIAL USE ONLY Table 4. Period Japan: Changes in Bank of Japan Loans and Holdings of Securities (in billions of yen) (1) (2) + (3) Net increase (+) or decrease ( - ) (2) Loans: Increase (+) or decrease ( - ) (3) Net purchases (+) or sales ( - ) of securities 1963 I Quarter II Quarter III Quarter IV Quarter + 158,2 - 109.2 + 202.4 + 18.0 + 59.1 - 198.7 + 91.3 + 81.2 + 99.1 + 89.2 + 129.1 + 99.2 Quarter Quarter Quarter Quarter + 203.3 + 75.7 + 106.1 - 329.6 + 36.7 + 121.0 + 97.5 - 300.5 + 166.6 - 196.7 1965 I Quarter II Quarter + 217.5 - 124.0 85.1 + 185.7 + 101.8 + 92.6 I II III IV May June July August + 8.6 - 29.1 + 216.5 14.4 + 1.0 + 15.0 26.5 + 62.8 + 94.4 70.1 + 159.2 + 39.0 1.8 - 109.6 Bond market. New issues of bonds rose in June to ¥178 billion from the May level of ¥160 billion. The increase was accounted for by a rise in new issues of bank debentures from ¥100 to ¥110 billion, and a rise in new issues of public corporation bonds from ¥33 billion to ¥42 billion. New issues of industrial debentures fell by ¥2 billion between May and June. Complete data is not yet available on July, but new issues of industrial debentures rose ¥1 billion to ¥26 billion. New issues of bank debentures rose by ¥6 billion in July. Bond yields in July were unchanged to lower. Average yields on local government securities, public corporation bonds and one-year bank debentures remained at the 1964 rates of 7.354, 7.053, and 6.224 per cent, respectively. The yield on long-term bank debentures was down slightly to 7.278 per cent, while the yield on industrial bonds fell from the June rate of 7.481 to 7.466 per cent. OFFICIAL USE ONLY OFFICIAL USE ONLY -5' Stock market. The stock market continued to rally from its five-year low on July 12. On September 9 the Dow-Jones stock average was ¥1,277, or 25 per cent above the July low. (See Table 5). The rising stock prices have been attributed to easier credit, recovery in the commodity market, and to buying operations by Japan Joint Securities Company. After September 9 the stock average fell somewhat, as some shareholders sold to take profits. Also, effective September 14, margin requirements on stocks purchased with securities as collateral were increased. Table 5. Japan; Dow-Jones Average of 225 Stocks, First Section of Tokyo Exchange June 28 ¥1 ,072 July 5 12 19 26 1 :,049 1 :,020 1,,038 1 ;,034 2 9 l s,021 1 3,151 August August 16 23 30 ¥1,158 1,171 1,245 September 6 13 20 25 1,236 1,250 1,272 1,244 2 1,205 October 1964 High Low ¥1 ,369 ¥1 ,203 1965 High Low ¥1,,290 ¥1 ;,020 Foreign trade. The seasonally-adjusted trade surplus in August soared to a record-breaking level. Between July and August exports increased from $750 to $780 million. There was a much smaller increase in imports, so that the trade surplus increased from $98 million to $121 million. This is $ 100 million higher than the average surplus on trade account during the first six months of the year, Table 6. Japan; Seasonally-Ad justed Foreign Trade, Monthlycr Monthly Averages — (in millions of dollars) 1965 IV Imports Exports Balance a/ b/ 643 484 -159 I 664 485 -179 II 655 534 -121 III 632 571 - 61 IV I 697 618 - 79 659 679 +20 II 689 711 +22 1965 May 675 723 + 48 726 727 + 1 July 652 750 + 98 Aug. 659 b/ 780 y +121 All figures on a customs basis. Preliminary„ Foreign reserves and capital flows. International reserves rose $14 and $5 million in August and September, respectively, to a level of $1,969 million. This marks a reversal in the general downtrend during April-July when reserves fell $103 million. The recent rise in reserves reflects primarily the sharp rise in exports. OFFICIAL USE ONLY OFFICIAL USE ONLY -6- The ratio of international reserves to the Bank of Japan's note issue fell from 34,3 per cent in June to 33.7 per cent in July, but then increased in August to 34.7 per cent. Table 7. 1965 Ratio of Reserves to Bank Notes March June September December March April May June July August Reserves/ Bank Notes Bank Notes Issued (billions of yen) International Reserves (billions of yen) End of Period 1959 1960 1961 1962 1963 1964 Japan: ¥520 . 9 701 .6 599 .8 727 .9 740 .9 718 ,6 697,= 3 698,,0 719,,6 ¥1 ,029.4 1 ,234.1 1 ,480.1 1 ,745.9 2 ,057.4 1 ,774.8 1 ;,860.6 1.,836.1 2.,298.8 50 .6 56 .9 40 .5 41 .7 36 .0 40 .5 37,.5 38,.0 31,,3 739. 1 726. 8 724. 7 712. 8 702. 0 707. 0 ,022.3 2,,032.8 1,,975.4 2,,078.3 2, 083.1 2, 0-38.2 36.,5 35. 8 36. 7 34. 3 33. 7 34. 7 2, The over-all balance of payments (as measured on an exchange transactions basis) again registered a deficit of $23 million in July. (See Table 8). The high trade surplus was more than offset by a deficit for services, an outflow of both long-term and short-term capital, and a negative item under errors and omissions. In August, the trade surplus was even larger and, with a decline in the capital outflow, the over-all balance was a plus $34 million. Because of changes in Japan's gold tranche position with the IMF in July and August, officially reported reserves differ from the over-all balance of payments figures contained in Table 8. Table 8. Japan: I Trade account balance - 93 Services balance - 36 Current account -129 Balance of Payments on an Exchange Transactions Basis (in millions of dollars) 1964 II III - 37 - 37 - 74 71 -39 33 IV 94 -42 51 I 51 -44 7 II 85 -58 27 OFFICIAL USE ONLY 1965 May June 102 - 61 41 123 - 55 68 July Aug. 152 - 51 101 175 - 59 116 OFFICIAL USE ONLY Table 8 (Cont.) 1964 III II I Net long-term capital receipts Net short-term capital receipts Net balance on capital account Errors and omissions Over-all balance of payments NOTE: 23 42 28 99 42 -54 122 84 26 IV II I -7- 1965 May July Aug. 5 -10 6 - 22 - 15 - 19 -11 -44 - 44 -104 - 90 - 61 -22 16 -54 - 38 -126 -105 - 80 -11 - 39 20 - 19 - -37 - 36 - 38 - 23 33 z l l - 14 - 30 - 5 -16 - 6 - 21 - 20 1 13 17 Quarterly data are monthly averages. rounding. 2 34 Data may not add exactly because of Preliminary data indicate that Japanese short-term liabilities to the U. S. s as reported by U. S. banks, rose $44 million in June to $2,868, but then fell $46 million in July to the lowest level since February. Table 9. 1959 1960 1961 1962 1963 1964 1965 Short-term Claims on Japan Reported by U. S. Banks (in millions of U. S. dollars) Jan. Feb. Mar. Apr. Ma^ 168 326 875 1,601 1,697 2,247 2,732 175 372 952 1,685 1,691 2,340 2,737 204 420 1 ,069 1 ,778 1 ,751 2 ,400 2 ,854 224 456 1,159 1,775 1,876 2,394 2,825 242 488 1 ,196 1 ,762 1 ,898 2 ,421 2;,824 July 260 497 1,272 1,758 1,872 2,469 2,868£/ 256 586 1,341 1,765 1,877 2,416 2,822y &U8. Sept. Oct. Nov. Dec. 269 628 1,335 1,767 1,798 2,472 262 660 1,288 1,711 1,890 2,493 262 693 1,281 1,710 1,904 2,488 275 711 1,292 1,662 2,017 2,496 324 806 1,528 1,740 2,171 2,797 been revised and include $52 million reported by Data for 1962, 1963 and 1964 banks initially as of December 31, 1961. The December 1964 figure includes $144 million in newly reported data. Preliminary NOTE: a/ Japanese long-term liabilities to the U. S., as reported by U. S. banks, declined $4 million in June, but then rose $3 million in July, according to preliminary reports. (See Table 10). Table 10. Jan. 1959 1960 1961 1962 1963 1964 1965 NOTE: a/ ~ T T Feb. Mar. ~ ~ T T W Long-term Claims on Japan Reported by U. S. Banks (in millions of U. S. dollars) Au^ S e ^ Oct. % ~T7~ "13™ Nov. ~T5~ Dec. "IF" 16 16 14 14 14 14 18 18 21 21 19 19 19 18 19 19 18 19 20 25 23 25 19 24 28 50 24 25 31 54 49 54 62 69 29 74 76 83 104 111 119 136 143 74 146 74 170 249 323 325 311 319 329 280 295 332 351 352 269 . 430 479a/ 454 472 483 479 4822/ 455 Data for recent years have been revised and the December 1964 figure includes $45 million in newly reported data. Preliminary. OFFICIAL USE ONLY -8- There were no reported Japanese bond issues in the American capital market in the July-September period. Earlier, Japan floated a $22.5 million issue in April and a $20,0 million issue in June. Foreign exchange. After remaining below 362 yen to the dollar after June 10, the spot middle rate depreciated in early July, recovering temporarily in the second week of September. The forward rate rose to 362 yen to the dollar on July 13 s but improved to 361 = 5 on July 20, and to 361.1 (the best rate since April 1) on September 14= Since June 28 the yen has remained at a premium in the forward market, On September 15 this premium was the highest since August 24. Table 11, Japan: Customer's T.T. Exchange Rate of Bank of Tokyo in Tokyo Three-month forward middle rate Yen-dollar spot middle rate Forward discount in per cent per annum 28 361.60 361.65 .06 July 5 12 19 26 362.10 362,30 362.25 362.30 361.75 361.80 362.00 361.65 .39* .55* .28* .72* August 2 9 16 23 30 362.20 362.30 362.15 362.20 362.30 361.65 361.45 361.50 361.35 361.70 .61* 6 13 362.05 362.15 361.45 361.20 September Asia, Africa and Latin America Section„ OFFICIAL USE ONLY .94* .72* .94* .66* .66* 1.05* Chill I I N T E R N A T I O N A L M O N E Y M A R K E T YIELDS FOR U.S. DOLLAR I N V E S T O R S 3 - M O N T H E U R O D O L L A R D E P O S I T V S . C E R T I F I C A T E OF D E P O S I T Wedneidoy llgurn & 1 I Y|EID$ 1 IW1 j Am \\ J ~ 1 1 V — 1 V » I / V V / R — 1 U.S. C l l T I IICATI o r DEPOSIT - | EURO - D O L I A I I OVER | )F D E P O S I T S. CERTI l;i Ji > 1 I 1 1 1 1 I 1 1 SELECTED I N T E R N A T I O N A L M O N E Y RATES Friday 11 g i EUKO-DOUA* DEPOSIT RATES ( L O N D O N ) - X 7 0 . 1 . H i l l PURCHASI CANADIAN fINANCI C0*fANY | r * ' «.$. PINANCB COMPANY *ei, Jll. IfAS 11*4 Jll, lt*l I N T E R E S T A R B I T R A G E , U N I T E D STATES / C A N A D A Friday Iigur• i * M O N T H TREASURY BILL RATES UNITED STATES BILL RATE D I F F E R E N T I A L A N D F O R W A R D C A N A D I A N D O L L A R DISCOUNT! - 3 - MONTH COVERED * J $ D RATE D I F F E R E N T I A L S (NET M 1*4 2 Thursday figures 1962. Friday thereafter. J 1*63 S 0 * J M*4 INCENTIVES) $ D 1 J 1**5 $ » INTEREST A R B I T R A G E , NEW Y O R K / L O N D O N Friday figure; 3 - M O N T H T R E A S U R Y BILL R A T E S RATE D I F F E R E N T I A L A N D 3-MONTH FORWARD STERLING S H I A D I N F A V O I Of 1 0 N D 0 N RAT DIFFERENTIAL WITH FORWARD EXCHANGE COVER (NET I N C E N T I V E ) INTEREST A R B I T R A G E FOR Friday f i g u r e ! GERMAN COMMERCIAL BANKS h i I i i i i 1 3 - M O N T H TREASURY BILLS, I N T E R B A N K L E N D I N G E U R O - D O L L A R D E P O S I T RATES 1 r RATE A N D E U R O - D O l l A t LONDON P?5 6EIMAN INTtllANK LOAN BATE BIIMAN TREASURY BILLS j_J 6 r — — i 1 1 1 1 1 r RATE D I F F E R E N T I A L A N D F O R W A R D DEUTSCHE M A R K S r i E A D IN FAVOR OF FRANKFURT FORWARD R A T I I I I , i i i i i i i i i r 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 (NET I N C E N T I V E ) I I IN FAVOR OF FRANKFURT I . J I I 1 1 K V\ 7 I I A INTEIIANK LOAN RATE [VVVJ / \ ' " / VVV , TIEASUIY 1111$ M _L_L J _L_J_ S IN FAVOR OF LONDON E U R O - D O U A R S I I I I I I I I I I I I I I I I D M J S D M J S Mil * _L_JL 1 SHORT-TERM INTEREST R A T E S * r 1 1P H 1 "f\ IUIOO O T U I • 10MI0N F I . / • V 1 s ^1- Y r U.S. GEIMANY H - U J . 1 L 1 1 1 1 1 1 1 1 1 I I 1 1 1 I I 1 1 1 1 1 I I 1 1 1 1 I I 1 1 1 1 I I 1 1 1 1 I I . " ,V 1 I I 1 I I I I 1 KUL M L L L L L L 1rV< '• T A»A / < W T — V \ / > ' ' A VJ^ V V >J~L S • R swniiiuei W 1 1 1 1 1 1 1 I * A «.I. 1 1 1 1 1 1 1 1 I I m i 1 11*1 and Swiuerlond (3 month deposit rale) "f" 3 month role for U S dollar depotili in London L I I I L L L L L I L 11*3 1 1 1 1 1 1 1 1 1 1 1 Chert 4 L O N G - T E R M B O N D YIELDS « •' — r IftS Chart 7 I N D U S T R I A L STOCK INDICES • • l i e stele ISO ,V y w " < " U.S. v-V S P O T E X C H A N G E RATES - M A J O R C U R R E N C I E S A G A I N S T U . S . D O L L A R U . I . STEHIN6 /x. <•»' 3 - M O N T H F O R W A R D E X C H A N G E RATES Friday figures A G A I N S T U.S. DOLLARS 7 ^ SWISS FRANC I AGAINST r |V r V I — ROUND STERLING - L O N D O N V\. DISCOUNT. A G A I N S T POUND STERLING • L O N D O N s ,> H. 13 No 217 October 13, 1965 Latest Figures Plotted In H.13 Chart Series, 1965 Per cent per annum Upper panel Per cent per annum Chart 5 (Friday, Oct. 8 , except as noted) (Wednesday, Oct, 6 ) Treasury hills: Euro-$ deposit 3.98 U.S. U.S. certif. of deposit A AS U.K. Lower panels Germany (Friday, Oct. 8 (Oct. 1) 4.00 Canada Eurc-dollar deposits: Finance Co. paper: Call 7-day 30-day 90-day 180-day 4.25 4.38 4.50 5•00 5.12 U.S. 4.25 Canada 4.46 Hire-purchase paper, U.K. Canada 4.00 U.S. 3.98 +0.02 Forward Canadian dollar -0.60 Net incentive (Canada + ) -0.58 Chart 3 0rf.'8 Treasury bills: Euro-$ deposit 4.88 (London) Japan: composite rate (Date: August ) 7. 731 Chart 6 U.S. govt. (Wed., ) Spread favor Canada (Friday, 3.82 Bonds: Oct. 8 Treasury bills: Swiss 3-month deposits (Date; Sept. 23 ) 4.84 Chart 2 (Friday, 3.88 ) 4. 31 Oct. 6 U.K. war loan (Thurs. Oct. 7 6.37 German Fed. Railway (Fri. Oct. 1 7.46 Swiss Confederation (Fri. KOct. 6 3.97 Canadian govt. (Wed. , Oct. 6 5.41 ) U.K. s.74 U.S. 3. Q8 Spread favor U.K. +1.26 Forward pound -1.35 Net incentive (U.K. +) -0,09 Digitized for For FRASER description and sources September 23, 1964. Netherlands government perpetual (Fri. , Oct. 1 ) 5. 16 of data see special annex to H. 13 Number 164,
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