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MONTHLY REVIEW
O f Credit and Business Conditions
FEDERAL
V o l u m e
37
RESERVE
BANK
JAN U AR Y
OF
NEW
YORK
1955
No. 1
M O N E Y M A R K E T IN D E C E M B E R
Although the December rise in demand for credit and cur
rency was greater in 1954 than in 1953, the money market
showed fewer signs of strain. The relative ease in the market
was maintained with a minimum of Federal Reserve interven
tion. N o outright purchases of securities for the System Open
Market Account were undertaken during the month. Federal
Reserve credit was released temporarily in limited amounts
on several occasions through repurchase agreements, in order
to avert any tendency for cumulative tightening influences to
develop. Daily average borrowings by member banks from
all Reserve Banks, after rising to 326 million for the
week ended December 1, declined substantially thereafter, to
average only 254 million for the month as compared with 488
million in December 1953.
There was some Arming of money market rates, however,
as a result of seasonal pressures. Federal funds were quoted
generally in the 1V4-1%6 per cent range, and the rates charged
in New York City and Chicago on loans to Government
security dealers were frequently posted as high as IV2-IVs per
cent. Market yields for long Treasury bills rose briefly to 1.30
per cent, their highest level since last January, but dropped
sharply toward the end of the month. In contrast to the appar
ent immobility of reserves last summer, however, the rise in
rates apparently drew a significant volume of funds into the
money market. Federal funds were actively traded at most
times, and dealers were frequently able to obtain financing at
reserve city or country banks and through nonfinancial cor
porations at rates lower than those charged in the central
money market. There was also some evidence of a broadening
of the Treasury bill market as yields rose above 1 per cent.
Except for year-end switching, the market for Government
securities other than Treasury bills was relatively inactive in
December. The impact of the Treasury’s refunding offer of
November 18 for the three issues maturing or called for pay
ment December 15 had been largely absorbed by the opening
of the month, and the year-end calendar was thus free of any
major Treasury debt operations other than the weekly roll-over
of bills. The swaps centered on the new 2 Vi per cent bonds
of 1963, for which there was a bank demand; however,
trading volume subsequently declined in the usual Christmasto-New Year lull. Led by rising quotations on the new bonds,
prices firmed until near the midmonth, but then drifted irregu
larly lower to the end of the year. Taking the month as a
whole, most issues showed moderate declines.
On December 27, the Treasury announced the lifting, as of
January 1, of the last remaining restrictions on bank ownership
of marketable Government obligations. The two issues affected
are the IV 2 per cent bonds of June and December 1967-72,
which may now be acquired by banks without restriction. The
Treasury also announced a relaxation of the regulations govern
ing Series E and H United States Savings bonds to permit their
purchase by "personal trust estates”, up to an annual purchase
limit of $20,000 (maturity value).
The Federal National Mortgage Association (FN M A ) on
December 30 announced a forthcoming offering of 500 million
dollars of short-term notes. The notes are to have a maturity
of approximately three years; further details as to maturity
of the issue and the interest rate will be announced in the first
week of January. Subscription books for the offering will be
open January 11, and payment, which will in effect be
eligible for credit to the Treasury’s Tax and Loan Accounts,
is scheduled for January 20. The notes will not be guaranteed
by the United States, but the Treasury has formally assured the
FNMA that it will advance any amount that may be necessary
to meet FNMA obligations. The notes may be purchased
and held without limit by national banks, since the law
exempts FNMA obligations from the restrictions generally
applicable to investment securities.
The weekly reporting member banks increased their loans
and investments by 819 million dollars during the five weeks
ended December 22. While holdings of Government securi
ties were reduced, this decline was more than offset by sub
stantial rises in security and business loans. The banks appar
ently further lengthened the average maturity of their Govern-
CONTENTS
Money Market in December ............................................
, ,
The Reconstruction of Japan’s Foreign Trade ........
1
4
Department Store Trade .................................................. ......
7
Selected Economic Indicators .......................................... . . . .
8
M O N T H L Y R E V I E W , J A N U A R Y 1955
Table I
W e e k l y C h a n g e s in F a c t o r s T e n d i n g t o I n c r e a s e o r D e c r e a s e
M em ber B a n k R e se rv e s, D ecem b er 1954
( I n m i l l i o n s o f d o l l a r s ; ( + ) d e n o t e s in c r e a s e ,
( — ) d e c r e a s e in e x c e s s r e s e r v e s )
Statement weeks ended
Factor
Five
weeks
ended
Dec.
29
Dec.
Dec.
8
Dec.
15
Dec.
1
22
Dec.
29
Operating transactions
Treasury operations*...............................
Federal Reserve float..............................
Currency in circulation...........................
Gold and foreign account........................
Other deposits, etc..................................
-213
4- 63
- 92
+ 15
- 25
+387
- 75
-193
+ 29
+ 13
+ 27
+567
- 76
- 47
- 43
+ 23
+137
-173
- 44
+ 5
-154
-4 74
+308
-127
- 51
+ 70
+218
-2 26
-174
Total.........................................
-250
+160
+427
-
52
-4 97
-2 1 2
Direct Federal Reserve a'edit transactions
Government securities:
Direct market purchases or sales.........
Held under repurchase agreements. . . .
Loans, discounts, and advances..............
+335
0
0
-
44
99
+ 63
+300
+335
+ 63
+127
0
0
61
0
-
31
+ 44
+ 18
0
-
-1 0 1
Total.........................................
+274
-
31
+ 62
-143
+363
+525
Total reserves...............................................
Effect of change in required reservesf ............
+ 24
+ 58
+129
7
+489
-114
-195
- 49
-134
+ 38
+313
- 74
Excess reserves f ...........................................
+ 82
+122
+375
-244
-
96
+239
Daily average level of member bank:
Borrowings from Reserve Banks. . . . . . . .
Excess reservesf......................................
326
626
291
765
263
705
147
880
243
657
254
727
Note: Because of rounding, figures do not necessarily add to totals.
* Includes changes in Treasury currency and cash,
t These figures ar* estimated.
ment security portfolios through the acquisition of new
Treasury bonds in exchange for maturing securities on
December 15.
M
e m b e r
B
a n k
R
e s e r v e
P
o s it io n s
Member bank reserve positions in December followed the
pattern of recent months. Reserve positions tightened at the
beginning of the month, eased over the midmonth, and
tightened again at the month end (see Table I ). The pattern
resulted largely from the movements in float and Treasury
balances, which tended to absorb reserves at the beginning
and end of the month, and to add to them at other times.
These fluctuations were superimposed on a sizable preholiday
outflow of currency into circulation, which continued until
the last week of the month. Daily average free reserves, at
473 million dollars, were less than in any month since
February 1954.
Fluctuations in the Treasury’s deposits at the Reserve Banks
were responsible for a considerable part of the changes in
free reserves in the first two weeks of the month and again
at the month end. These deposits unexpectedly increased by
204 million dollars, to 742 million, during the week ended
December 1, as the Treasury’s outlays fell short of anticipa
tions. By the close of the next statement week, however, the
balance had dropped back to 350 million, releasing 392 mil
lion dollars of reserves, and further slight declines took place
in the following two weeks. In the last week of the month
replenishing the balance absorbed 155 million dollars. On
December 15, the last 5 per cent of the corporate income tax
on 1953 income was payable, but quarterly interest payments
by the Treasury and the cash redemption of the 345 million
of unexchanged Government obligations maturing December
15 absorbed most of the receipts. The rebuilding of the
Treasury’s balance in the last week of the month was accom
plished largely by means of calls on the Tax and Loan Accounts.
Variations in the volume of float during December were
another major influence on the banks’ reserve positions. On
the whole, these variations were rather close to seasonal expec
tations. Float usually increases rapidly in mid-December, when
processing is often delayed by the heavy volume of checks and
slower mail service. In 1954, float expanded from 624 mil
lion on December 8 to nearly 1.5 billion early in the statement
week ended December 22. The peak of float roughly
coincided with the trough in the Treasury balance; between
December 1 and December 22, these two factors combined
supplied the member banks with more than a billion dollars
in reserves. In the last week of the month, the combined
reserve absorption from float contraction and Treasury opera
tions came to 628 million.
As is normal for December, there was a sizable drain on
bank reserves as a result of the seasonal demand for currency.
The increase in currency circulation for the four weeks ended
December 22, 1954 was, in fact, somewhat larger than the
corresponding 1953 increase (534 million in 1954, compared
with 465 million in 1953). Nevertheless, at its seasonal high
immediately prior to the close of the Christmas shopping
season, the amount of currency in circulation was about 200
million dollars less than its high for December 1953.
Federal Reserve Treasury bill purchases of 335 million
during the last week of November moderated the reserve
losses incurred by the banks at that time. Thereafter, the
System Account remained inactive to the end of the year.
Repurchase agreements were extended from time to time by
this Bank to help overcome temporary stresses in the New
York money market, but the volume of such contracts out
standing at most times did not add substantially to the total
quantity of reserves.
T
h e
G
o v e r m
e n t
S
e c u r it ie s
M
a r k e t
The Government securities market (except for Treasury
bills) was relatively quiet in December in relation to other
recent year-end periods, and while prices fluctuated rather
widely at times, this largely reflected "professional” rather than
investor influences. For much of the month, the tone of the
market was set by the new 2 l/ 2 S of 1963, and prices for the
list as a whole rose or fell with the quotation on the new issue.
The premium on the new bond had narrowed to % 2 ° n
November 30, following the Treasury’s announcement that
exchange subscriptions for the bond totaled 6.7 billion dollars,
a much larger amount than the market had anticipated, but
again widened to % 2 the next day (December 1). A fairly
strong bank demand developed for the new securities, partly
on outright buying but mainly on switches from both longer
and shorter maturities, until quotations reached a high of
10015/ 32 on December 10. Prices of most other intermediate
and long-term Governments rose sympathetically, although not
so strongly, during this period.
3
F E D E R A L R E SE RV E B A N K OF N EW Y O R K
Following the 10th of the month, the demand for the new
bond tapered off, and at the same time the New York money
market temporarily tightened somewhat. In this climate,
press reports of a shift toward a less actively easy System
credit policy touched off a general, though moderate, price
decline. Prices drifted irregularly lower in very light trading
until about December 20, at which time the premium on the
new bond had shrunk to %2- Shortly afterward there was a
brief but sharp recovery, since it appeared to the market that
the peak of the seasonal pressure in the money market (meas
ured by the issuing rate of 1.333 per cent on the December 23
Treasury bills) had passed without any exceptional strain on
either the banks or the Government securities market. Follow
ing Christmas, however, a downtrend again set in, and on
December 31 the new 2 ^ s of 1963, which had rebounded
to an 1% 2 premium on December 23, were quoted at 100^4.
Activity continued to reflect switching for year-end purposes,
accompanied by occasional bank liquidation of selected bonds
and notes.
For the month as a whole, prices of most intermediate and
long-term obligations showed net declines. The longest-term
issues were off about % 2 of a point, except for the 3V4’s of
1978-83 which advanced 1 % 2 t0 HO % 2, while intermediates
were lower by fractions ranging to n/ 3 2 of a point.
In the short-term area, yields rose rather abruptly until the
week before Christmas, as seasonal needs for cash led banks
as well as corporations to liquidate part of their holdings.
The average issue rate for bills rose week by week, from 0.897
per cent for the last November bill to 1.333 per cent for the
issue dated December 23. Market yields on three-month bills
also rose, but not so sharply. On the other hand, yields on
short bills climbed at one point as high as 1.50 per cent. The
rise in bill yields partly reflected anticipation of somewhat
tighter money market conditions than actually developed.
Following the 20th of the month, bill yields turned rapidly
downward, influenced by expectations of a seasonal easing of
the money market in January as well as by a revival in nonbank
demand. The average issue rate fell to 1.175 per cent for the
bill dated December 30 (for which bidding occurred on
December 2 7 ), and market yields on the longer bills, which
had been quoted as high as 1.30 per cent, declined by the
year end to 1.02 per cent. Rates on certificates and other
short-term, interest-bearing issues moved in rough conformity
to bill yields.
M em ber B a n k C redit
Member bank loans and investments expanded by 819 mil
lion dollars during the five weeks ended December 22, as
shown in Table II. The gain stemmed largely from increases
in business, real estate, and "all other’ (largely consumer)
loans, which together rose by 637 million. The banks’ holdings
of Government and other securities dropped 429 million, but
this decline was more than matched by a 608 million dollar
increase in loans extended for the purpose of purchasing or
carrying Government and other securities. Although hold
ings of Government securities other than Treasury bills were
reduced 363 million, there was nevertheless a further lengthen
ing of the banks’ security portfolios, since a large share of
the 6.7 billion dollars of subscriptions for the 8 % -year bond
offered in the Treasury’s recent exchange offer was presumably
entered by commercial banks.
The 637 million increase in business, real estate, and "all
other” loans contrasts strikingly with the comparable 1953
figures. In the corresponding period of 1953, these types of
loans showed a combined increase of only 18 million. More
over, the 1953 figures included more than 225 million dollars
of Commodity Credit Corporation certificates of interest pur
chased by the weekly reporting banks in the week ended
December 23, 1953; no similar purchases occurred in Decem
ber 1954. All industrial groups except public utilities showed
larger borrowings, or smaller repayments, in the five weeks of
1954 under review than in the corresponding period of 1953.
The largest net borrowers in the 1954 period were the food,
liquor and tobacco industries, and the sales finance companies.
New York City banks shared only to a small extent in the
loan rise. Business loans in the City increased only 20 million
against a country-wide rise of 316 million; real estate loans,
17 million against the country-wide rise of 105 million; and
'all other” loans, 74 million against the country-wide rise of
216 million. The relatively small expansion in business loans
in New York City mainly reflected the fact that virtually all
the net borrowing by sales finance companies occurred outside
the City, while all of the net repayments by public utilities
were made in New York City.
T a b le II
W e e k ly
C h a n g e s in P r in c ip a l A s s e t s a n d L ia b ilit ie s
W e e k ly R e p o rtin g M e m b e r B a n k s
( I n m illio n s o f d o lla r s )
of th e
Statement weeks ended
Item
Nov.
24
Dec.
Dec.
1
8
Dec.
15
Dec.
22
Change
from
Dec. 30,
1953 to
Dec. 22 ,
1954
A ssets
Loans and investments:
Loans:
Commercial, industrial, and agricul
tural loans....................................
Security loans..................................
Real estate loans..............................
All other loans (largely consumer)..
+ 77 + 41 +
- f 39 + 20 +
4- 6 + 5 +
+ 40 + 3 +
104
304
48
47
+
+
+
64 84 +
+
62 +
957
528
675
168
449 +162 + 67 +
509
+ 61 +
377
197 -227 -153
69 - 78 - 2 0 1
+
+
390
32
+ 78 + 124
- 47 +4,281
Total......................................... _ 266 -305 -354 +
Other securities................................ — 31 + 29 + 87
422
44
+ 31 +4,405
+ 2 +1,126
378
887
+ 33 +5,531
+ 94 +5,908
+
+
+
+
Total loans adjusted*................... +
Investments:
U. S. Government securities:
Treasury bills...............................
-
_
Total loans and investments adjusted*. +
30
329
26
64
297 —276 -267
152 -114 - 2 0 0
+
+
20
Loans to banks........................................ +
40 + 144 + 23 -
63
Loans adjusted* and “ other” securities.. +
418 +191 +154 +
465
+ 63 +1,503
+160 +169 +1,343
34
- 16 + 64 +
474
-299 -5 16
+ 99 +1,808
+ 77 +1,841
- 42 + 610
+ 154 +
238
Liabilities
Demand deposits adjusted...................... + 572
Time deposits except Government..........
7
U. S. Government deposits..................... — 220
Interbank demand deposits:
-1,003
27
+
+187 +123 +
+ 20 + 26 +
527
13
-216 +
+ 32 +
169
133
* Exclusive of loans to banks and after deduction of valuation reserves; figures for the individual
loan classifications are shown gross and may not, therefore, add to the totals shown.
4
M O N T H L Y R E V I E W , J A N U A R Y 1955
T H E R E C O N S T R U C T IO N O F J A P A N ’S F O R E IG N T R A D E
Japan has made some impressive economic gains during the
last five years. Between 1950 and 1954, industrial production
more than doubled, the physical volume of exports increased
by more than 40 per cent, and per capita consumption rose
by one third in the cities and one half in the rural areas.
These improvements were, to a large extent, made possible
by direct United States aid of over 2 billion dollars during
the early postwar years and, since 1950, by the receipt of
dollar payments totaling close to 3 billion from the so-called
"special procurements” associated with United States and
United Nations activities in Japan and the near-by areas.1
But a decline in these procurements in 1954, coupled with a fall
in export receipts in 1952 and 1953 and an unceasing rise in
import expenditures until early 1954, exposed certain of the
weaknesses of the Japanese economy— the continuous large
deficits in Japans foreign trade and the pronounced inflation.
Direct aid and special procurements by the United States
had enabled Japan, despite continuous trade deficits, to build
up her foreign exchange holdings, as reported by the Interna
tional Monetary Fund, from the equivalent of 225 million dol
lars at the beginning of 1950 to 1,192 million at the end of
May 1952. By May 1954, however, the holdings had dropped
almost one third to a post-Korea low of 820 million. The
constellation of events that produced this rapid fall had led the
government in the autumn of 1953 to initiate a program of
general monetary restraint with the dual aim of contracting
the inflated domestic demand and reducing export prices, and
also to discontinue certain special credit facilities that had
been made available for import financing. During 1954, credit
was tightened further and exchange allocations for imports
curtailed. These policies helped raise foreign exchange hold
ings to the equivalent of 976 million dollars by the end of
October 1954.
S
o m e
B
a s ic
P
r o b l e m s
The problem for Japan is not, of course, simply the restora
tion of a certain prewar relationship among domestic con
sumption, imports, and exports. Japans difficulties are far
more deep-seated. First, while Japans natural resources are
very limited, her population has increased more than one
fourth since the mid-thirties; hence, the production and im
portation of food and other goods for domestic consumption
must be expanded commensurately if the prewar standards of
living are to prevail. Industrial production is indeed about
60 per cent greater than prewar, and per capita consumption
is on the average slightly above prewar. However, during the
first eight months of 1954, the physical volume of total imports
both for domestic consumption and for use in manufactured
1 "Special procurements” constitute a variety of commodity and
service transactions. They have arisen specifically in connection with
United Nations military operations in Korea; with rehabilitation and
reconstruction in Korea; with American military needs in Japan itself;
with mutual defense in, and economic assistance to, Asian and Pacific
areas; and with the demand for goods and services by members of the
armed forces who are stationed in Japan or who go there on leave.
exports was equal to just 73 per cent of the 1937 rate, and
the volume of exports to a mere 36 per cent.
Secondly, in the mid-thirties about 20 per cent of Japans
imports came from Korea and Formosa, which were then
Japanese colonies, and about another 10 per cent from China;
about 25 per cent of her exports went to Korea and Formosa
and about 20 per cent to China. Now political and economic
changes have reduced imports from those areas to only about
4 per cent of Japan’s total and exports to only about 10 per
cent of the total.
Thirdly, Japan faces the difficult task of adjusting the com
position of her exports to a new pattern of foreign demand.
Silk and silk products were the most important of all Japans
prewar exports, comprising one fourth of the total. Now,
however, the competition of synthetics has reduced, probably
permanently, the demand for such products. W hile cotton
goods, her other major class of prewar exports, today lead all
exports, they are confronted by the rapid expansion of cotton
textile industries in countries that have heretofore been impor
tant markets for Japan. On the other hand, the industrializa
tion programs of the underdeveloped countries have led to an
increased demand for machinery and metal products. H ow
ever, much of the existing Japanese equipment for manufac
turing these products was installed in the thirties or early
forties, and its obsolescence is contributing to high costs and
uncompetitive prices.
T
r a d e
w
it h
t h e
S
t e r l in g
A
r e a
The largest group of markets for Japans exports in the
early fifties was the sterling area, which took between 40 and
45 per cent of the total as compared with only about 20 per
cent in the mid-thirties; the Far Eastern sterling countries
alone absorbed about a quarter of Japan’s exports, compared
with 10 per cent before the war. Imports from the sterling
area also increased relative to other sources, but only slightly,
and Japan consequently piled up large sterling holdings. H ow
ever, in 1953 Japans exports to the sterling area fell by about
40 per cent (see table), mainly because of the trade barriers
erected by the sterling countries to help redress their own
payments imbalances, and Japan’s sterling trade deficit in that
one year was approximately 50 per cent greater than the com
bined surpluses of the two preceding years.
In early 1954 some of the restrictions on Japanese exports
to the sterling area were lifted, and as the year progressed such
exports rose rapidly. Almost 60 per cent of the Japanese
exports to the area in January-September 1954 were textiles
and fiber products, constituting fully one fifth of aggregate
Japanese exports. Following in importance were exports
of machinery, metals, and metal products, which together
amounted in value to one third the textile exports to the area.
Japan is also an important market for certain sterling
area countries. During the three years 1951-53, Japan took
an average of 8 per cent of Australia’s total exports (mainly
F E D E R A L R E SE RV E B A N K OF N EW Y O R K
w ool), 13 per cent of Burma’s (mainly rice), and 15 per cent
of Pakistan’s (mainly cotton). For the sterling area as a whole,
Japan in 1952 was the fifth-ranking market, taking 3 per cent
of the entire area’s exports and 7 per cent of the exports of
the Far Eastern members of the area.
In agreeing last January to an expansion in sterling area
imports from Japan, the British Government, as was pointed
out by an official spokesman, saw advantages for both Britain
and the Commonwealth that would outweigh Japan’s increased
competition with certain British industries. Although some
Japanese products may not be comparable in quality to those
of Western countries, their very cheapness may make them
the preferred alternative for a poor country which must hus
band its resources. This is particularly true for consumer
goods. Secondly, certain lines of Japan’s capital goods are less
complex and less automatic in operation than comparable
equipment offered for sale by Western countries and, conse
quently, may be better adapted to the technical needs of the
underdeveloped countries as well as to their purses. Thirdly,
as Japan’s population and production expand, the country will
probably grow as a market for sterling area products, including
manufactured goods from the United Kingdom, since Japan
has so few natural resources within her own boundaries.
T
r a d e
w
it h
t h e
" N
o n s t e r l in g
”
F
a r
E
a s t
Far Eastern countries other than those belonging to the ster
ling area provided markets almost equal in size, during the
T h e D irection o f Japanese T rad e
Millions of dollar equivalent
Country or area
1937
1952
1953
Jan.Aug.
1954
Per cent of total
1937
1952
1953
Jan.Aug.
1954
Exports
United States.................................
Canada..........................................
Sterling area..................................
Australia, New Zealand.............
Far East only.............................
“ Nonsterling” Far East1................
Africa2............................................
Latin American Republics............
Continental Western Europe.........
Other*............................................
188
6
251
26
127
613
30
19
42
48
12
234
15
539
36
338
293
15
25
50
101
1
234
15
316
36
191
420
26
71
104
80
9
o
o
Total.............................................. 1,209 1,273 1,275
167
11
281
16
168
296
35
13
132
51
17
100.0 100.0 100.0 100.0
15.6
0.5
20.8
2.2
10.5
50.7
2.5
1.6
3.5
4.0
1.0
18.4
1.2
42.3
2.8
26.5
23.0
1.2
2.0
3.9
7.9
0.1
18.4
1.2
24.8
2.8
15.0
32.9
2.0
5.6
8.2
6.3
0.7
16.7
1.1
28.0
1.6
16.7
29.5
3.5
1.3
13.2
5.1
1.7
Imports
Total............................................. 1,375 2,028 2,410 1,763 100.0 100.0 100.0 100.0
United States.................................
Canada..........................................
Sterling area...................................
Australia, New Zealand.............
Far East only.............................
“ Nonsterling” Far East1................
Middle East3..................................
Africa2............................................
Latin American Republics..............
Continental Western Europe.........
Other8.............................................
366
30
302
62
171
480
28
2
52
106
9
768
110
500
142
273
262
113
2
168
99
6
758
128
603
182
328
335
123
7
265
149
42
672
101
319
93
177
231
115
3
192
116
14
26.6
2.2
22.0
4.5
12.4
34.9
| 2.0
!1 o .i
I 3.8
I 7.7
1 0,7
37.9
5.4
24.7
7.0
13.5
12.9
5.6
0.1
8.3
4.9
0.3
31.5
5.3
25.0
7.6
13.6
13.9
5.1
0.3
11.0
6.2
1.7
38.1
5.7
18.1
5.3
10.0
13.1
6.5
0.2
10.9
6.6
0.8
Note: Because of rounding, figures do not necessarily add to totals.
1 Includes continental China.
* Excludes sterling area countries. Egypt, the Anglo-Egyptian Sudan, and Ethiopia are included
under Middle East.
* Mainly USSR and Eastern Europe.
Sources: Direction of International Trade, joint publication of the Statistical Office of the United
Nations, International Monetary Fund, and International Bank for Reconstruction and
De/elopment; Financial and Economic Annual of Japan, 1938, The Department of Finance,
Japan.
5
early fifties, to that of the “sterling” Far East, the two areas
together taking almost half of Japan’s exports. However, as
the table shows, in the past two years exports to the "'non
sterling” countries rose, offsetting to a large extent the decline
in exports to the "sterling” countries. Whereas before the
war Japan’s most important export markets in this group
were China and Korea, now Indonesia is foremost. The com
modity composition of Japan’s exports to the "nonsterling”
Far East has also changed. In the mid-thirties, about three
fourths consisted of textiles; now textiles account for only
one third to one half; and machinery, metals, and metal
products, previously comprising little more than 10 per cent,
are almost equal in value to textiles. This trend, evident also
in the trade with the "sterling” countries of the Far East, is
a reflection of the development programs in Japan’s export
markets.
Japan has been trying to meet these changes in demand both
by a shift in her own pattern of production and by vigorous
sales efforts. The latter have included the stationing of techni
cal missions and the establishing of trade fairs in potential
markets, and the so-called "economic cooperation” contracts
to provide financial assistance and/or technical know-how
along with the export of machinery and equipment. The
Japanese hope such contracts not only will expand their Far
Eastern markets, but also will open up new sources of raw
materials to replace prewar sources.
One impediment to more rapid progress in the expansion
of Japan’s economic relations with other Far Eastern countries
has been the question of reparations. The impasse may have
been broken with the recent signing of a reparations and eco
nomic cooperation agreement with Burma, which provides
for reparations of 200 million dollars’ equivalent and invest
ments of 50 million. Japan is putting great stress upon repara
tions in the form of services, since this type of reparations
has the advantage for Japan of requiring a relatively small
expansion of imports. Whether in the form of goods or tech
nical services, reparations payments, if properly handled, may
well prove a positive advantage for Japan in the long run.
Not only could they give rise almost automatically to further
exports because of the usual need for servicing equipment, but
acquaintance with certain Japanese products might pave the
way for other types of exports as w'ell.
T
r a d e
w
it h
t h e
C
h in a
M
a in l a n d
Before the war, China (including Manchuria) was the larg
est single export market for Japan, taking mostly consumer
goods; and it also provided practically all of Japan’s legume
and edible-oil imports, three quarters of her coal imports,
and almost half of her pig iron imports. Trade with north
ern Korea also was important, as Japan obtained large quanti
ties of minerals from that region. Today, Japan’s trade with
these areas, and with the Soviet Union and the Eastern
European countries, is together hardly more than 1 or 2 per
cent of her total trade.
6
M O N T H L Y R E V I E W , J A N U A R Y 1955
The memory of the previous substantial trade with China
causes many Japanese to continue to believe that the present
insignificant exchange of goods between the two countries
must be capable of expansion. However, Japan desires products
from China that China appears reluctant to export. Intent
upon her own industrial development, China seems unwilling
to share her resources of high-quality coking coal and iron ore,
and will probably export such items only in exchange for
goods that occupy a high place on her list of development
imports. In addition, there are the restrictions imposed on
Japanese exports to China as a result of the Battle Act, which
denies United States assistance to countries supplying strategic
goods to the Communist bloc.
Similar considerations have also affected trade with the
Soviet Union, and provisional barter contracts arranged by five
Japanese trading firms with the Russian Government last May
have so far resulted in agreements for only a fraction of the
original amount. As of now, it appears as if the constraints of
state-monopoly bargaining and state-determined priorities will
result in a much lower level of trade with both China and
the Soviet Union than the Japanese firms originally anticipated.
T
r a d e
w
it h
t h e
U
n it e d
S
t a t e s
In the last three years, Japans exports to the United States
have comprised between one fifth and one sixth of her total
exports, considerably less than her exports either to the sterling
area or to the "nonsterling” Far East, as may be seen from the
table. Furthermore, while the United States share in Japans
total exports is slightly larger than before the war, the volume
it represents is much less, since, as already noted, Japans total
exports are at present under 40 per cent of the prewar volume.
The United States is, however, the largest supplier of Japanese
imports— a role that in prewar years belonged to the "nonsterling” Far East— and is providing between 30 and 40 per
cent of the total, compared with about 25 per cent in the
thirties. The same pattern of a slight percentage increase in
exports but a larger increase in imports is visible in Japan’s
trade with Canada. The ensuing deficit in Japans dollar trade
is consequently much greater than it was before the war. At
that time, Japan’s very large dollar deficits were usually covered
by trade surpluses with the rest of the world and/or by net
receipts from shipping and other services. During the fifties,
however, the greatly increased dollar deficits have normally
been accompanied by only relatively small surpluses with the
rest of the world and by deficits on service account; hence
Japans present dependence upon the dollar receipts from
special procurements.
In the mid-thirties, raw silk comprised more than half of
Japans total exports to us, and raw cotton about one third of
our exports to Japan. Now our imports are much more
diversified. Japan’s imports from us are also more varied, since
the prewar sources for many of Japan’s imports are now closed
to her. While raw cotton remains the leading import, Japan
also has turned to us for large supplies of wheat and other
foodstuffs, and for coal, petroleum, and iron ore, as well as for
the traditional machinery.
Since Japan’s imports from us are largely basic necessities,
they cannot be easily curtailed unless substitute sources are
found. Nor would Japanese earnings of sterling surpluses pro
vide an automatic offset to dollar deficits so long as sterling is
not fully convertible. Tariff reductions by the United States
and a reduction in Japanese export prices would presumably
permit Japan to narrow the dollar gap somewhat. However,
it seems essential that Japan not only increase her total exports
but also find substitute sources for a portion of those goods
now obtained from the United States.
T
r a d e
P
r o m o t io n
P
o l ic ie s
The Japanese Government has shown its concern over this
problem by formulating a three-year trade plan that aims
at a sizable increase in imports from Southeast Asia within a
reduced import total. While the 1954 trade figures will prob
ably be close to those in the plan, this does not mean that
the 1957 goals of exports of 1.74 billion dollars’ equivalent
and of imports of about 2 billion will be easy to achieve,
for the methods by which much of the 1954 results was
accomplished— the pricing of exports below domestic levels
and the running-down of inventories— can hardly be continued
much longer.
The government has been attempting to improve Japan’s
trade position in several ways. One has been the policy of
monetary restraint mentioned earlier, to curb excessive domes
tic demand and reduce export prices. Another has been the
provision of special facilities for extending credit to exporters
and export industries. Thus, the government has expanded the
powers of the Japanese Export-Import Bank, which may make
loans to exporters as well as to foreigners wishing to purchase
Japanese goods, and also may provide loans for investments
by Japanese corporations abroad if such loans are expected to
contribute to the promotion of Japanese exports or to an
advantageous shifting of the sources of imports. Furthermore,
it has been channeling funds to the private sector, through the
Japan Development Bank and other institutions, for the mod
ernization of important export industries. Assistance has also
been made available to various export industries through direct
and indirect subsidies, although the government is now plan
ning to curtail or eliminate some of these aids. Finally, since
last July the authorities have made provision for preferential
credit treatment for export financing through regular banking
channels. In another sphere, the government recently decided
to set up an Export Council at the cabinet level, to meet once
a month to discuss basic government policies in the context
of export promotion. Working with the council will be export
councils for various industries, and one council to consider
ways of expanding receipts from "invisible exports”— includ
ing shipping, air transportation, and tourism.
7
F E D E R A L R E SERVE B A N K OF N EW Y O R K
Concluding Remarks
Japan, like West Germany, has in recent years shown great
recuperative powers. Unlike West Germany, however, Japan
has not matched increased domestic output with a correspond
ing expansion of exports. Yet, Japan is vitally dependent on
export earnings to pay for imports indispensable to her econ
omy. In her efforts to reconstruct her export trade, Japan has
encountered many obstacles. Some of these are the usual
difficulties arising from protracted inflationary pressures, which
tend to increase the demand for imports and hamper exports
through continually rising costs and preclusive claims of
domestic consumption on resources. But other difficulties are
of a structural character— the rapidly expanding population,
the scarcity of domestic resources, and the obsolescence of
industrial equipment. There has been a growing awareness in
Japan that effective monetary restraint designed to combat
inflationary pressures is a prerequisite to the required expansion
of exports. At the same time, policies are being implemented
to develop industrial resources, expand food production, and
improve the productivity of Japan’s economy. The restoration
of her productive strength and the attainment of a better
balanced internal economy will also be greatly helped by such
financial assistance from abroad as she can use effectively;
furthermore, Japan may benefit from foreign assistance received
by her trade partners in South and Southeast Asia.
While Japan’s first need is to establish an efficient domestic
economy, it is also essential that Japan secure the opportunity
to increase her exports, all the more so because of the decline
in United States outlays resulting from the reduction of
United Nations forces in Korea. Japan is seeking accession
to the General Agreement on Tariffs and Trade (G A T T ),
which the nations of the free world have adopted as a means of
stimulating world trade by lowering tariffs, relaxing trade
restrictions, and eliminating objectionable trade practices. In
accordance with a proposal made by the United States, negotia
tions will open in Geneva early this year with the primary pur
pose of expanding Japan’s trading opportunities with the
United States and other GA TT members and thereby reinte
grating the Japanese economy into the free world trading
community.
DEPAR TM EN T STORE TRADE
Total dollar sales at Second District department stores
during the 1954 Christmas shopping season were the high
est ever, according to preliminary information from a repre
sentative group of reporting stores. District sales during the
preholiday period, December 1-24, which included the same
number of shopping days as the corresponding period of 1953,
were approximately 2 Vz per cent higher than in that year. For
the entire month of December 1954, sales are estimated to
have reached an all-time high at 186 per cent of the 1947-49
average, 2 points above the previous high reached in Decem
ber 1952. The preliminary data indicate that the increase in
sales over November may have been slightly (about 1 per
cent) less than usual, but November sales were at an all-time
peak for that month. On a daily-average basis, however, the
rate of sales appears to have been slightly under that of
December 1950, when the month included one less business
day than December 1954.
New York City sales showed a 4 per cent gain over a year
ago for the preholiday period, and this gain was chiefly
responsible for the rise in total District sales. Buying at the
City’s department stores was stimulated by the more season
able weather that prevailed during most of December, as well
1953
Item
N ov.
Oct.
Sept.
N ov.
Sales (average daily), unadjusted.................
Sales (average daily), seasonally a d ju sted ..
132
105
110
105
106
102
129
102
Stocks, unadjusted............................................
Stocks, seasonally adjusted............................
129
113
130
116
120
115
132
115
D ep artm ent and A pparel Store Sales and S to ck s, S econd F ed eral R eserv e
D istrict, P e rce n ta g e C hange fro m the P re ce d in g Y ea r
Net sales
Area
Department stores, Second District..............
Stocks
on hand
Nov. 30,
Jan.through
Feb.through
Nov. 1954
1954
Nov. 1954
Nov. 1954
+ 7
+ 1
+ 1
-
+ 9
+10
+ 1
+ 1
+ 2
+ 2
-
+11
+ 2
+ 1
+ 3
+ 3
+ 9
+ 7
+ 2
+
+
+
-
+ 5
0
- 1
- 4
- 5
+ 3
+ 2
- 1
+
+
+
+
+
+
+
+
-
Niagara Falls......................................
Rochester Metropolitan Area................
2
5
2
1
2
6
2
9
1
2
6
4
0
0
- 4
+11
2
1
3
2
3
0
- 1
- 5
- 2
- 1
- 6
0
- 3
- 3
+ 1
+ 4
Apparel stores (chiefly New York City).......
+10
+ 2
New York—Northeastern New Jersey
Metropolitan Area..............................
New York City......................................
Nassau County......................................
Westchester County...............................
Northern New Jersey.............................
Fairfield County........................................
Lower Hudson River Valley......................
Poughkeepsie..........................................
Upper Hudson River Valley......................
Albany-Schenectady-Troy
Metropolitan Area..........................
Schenectady........................................
Central New York State...........................
Utica-Rome Metropolitan Area.............
Indexes o f D epartm ent S tore Sales and S tock s
S econ d F ederal R eserv e D istrict
(1 9 4 7 -4 9 a v e r a g e ^ 100 per cen t)
1954
as by the more intense promotional efforts of the stores.
(Newspaper advertising was limited in December 1953 by an
eleven-day photoengravers’ strike, with consequent unfavor
able effects on telephone and mail-order sales.)
In the rest of the New York-Northeastern New Jersey
metropolitan area, the preholiday shopping experience was
mixed. Stores in Newark had sales declines averaging 4
per cent; sales in the metropolitan area excluding New York
Syracuse Metropolitan Area..................
Northern New York State.........................
Southern New York State.........................
Binghamton Metropolitan Area.............
Western New York State...........................
Buffalo Metropolitan Area.....................
5
1
1
4
6
3
2
2
-
2
2
1
—
+ 6
+ 1
- 1
+ 3
-
0
2
4
1
0
2
2
3
1
1
5
1
1
6
0
- 2
- 3
+ 2
+ 4
- 4
- 7
- 2
- 2
+ 1
+ 4
- 3
- 1
- 5
- 5
-1 2
+ 1
0
0
—
+ 3
+ 3
+ 5
+
-
8
M O N T H L Y R E V I E W , J A N U A R Y 1955
City and Newark, however, increased somewhat more than
New York City sales. In other major trading areas of the
District, sales were 1 per cent higher than 1953 s preholiday
experience in the Syracuse metropolitan area, and equaled it
in the Buffalo metropolitan area. However, sales declined
somewhat in the Rochester metropolitan area, where they were
down 2 per cent from 1953.
For 1954 as a whole, department store sales in the District
were 1 per cent ahead of 1953. In comparison with the previ
ous year, however, all of the improvement in District sales in
1954 came in the latter half of the year, when sales were
2 per cent higher than in the last half of 1953. During the
first half of 1954, sales in the District as a whole barely
equaled those of the first six months of 1953; of the
Districts five most important trading areas— New York
City, Newark, Buffalo, Rochester, and Syracuse— only the
Rochester metropolitan area registered a year-to-year in
crease in sales (3 per cent). In the last six months of the
year, however, sales in New York City rose 3 per cent above
the previous year’s level, and slightly surpassed the con
tinued favorable sales performance of the Rochester metro
politan area, where sales were up 2 per cent in the last
half of 1954.
SELECTED ECONOM IC IN D IC A TO R S
A new booklet, Selected Economic Indicators, is now
available from this Bank free of charge. It contains
articles describing the nature and significance of twenty
statistical series that reflect economic conditions in the
United States. Each month this Review reports, in a table
of "Selected Economic Indicators”, the latest figures avail
able for each of the series. The articles first appeared in
this Review; they have been revised to bring them up
to date. Requests for copies should be addressed to the
Public Information Division, Federal Reserve Bank of
New York, New York 45, N. Y.
S E L E C T E D ECO N O M IC IN D IC A T O R S
U nited S tates and S econd F ederal R e se rv e D is tr ic t
Percentage change
1954
Item
1953
Unit
N ovem ber
October
September
Novem ber
Latest month Latest month
from previous from year
month
earlier
U N IT E D STATES
Production and trade
Industrial production*......................................................................
Electric power output*.....................................................................
Ton-miles of railway freight*..........................................................
Manufacturers’ sales*........................................................................
Manufacturers’ inventories*............................................................
Manufacturers’ new orders, tota l*.................................................
Manufacturers’ new orders, durable good s*................................
Retail sales*........................................................................................
Residential construction contracts*...............................................
Nonresidential construction contracts*...................................... ..
P rices , wages, and employm ent
Basic com m odity p rice s f..................................................................
Wholesale p ricesf...............................................................................
Consumer p ricesf...............................................................................
Personal income (annual rate)*......................................................
Composite index of wages and salaries*.......................................
Nonagricultural em ploym ent*........................................................
Manufacturing em ploym ent*..........................................................
Average hours worked per week, m anufacturingf.....................
Unemployment %.................................................................................
1947-49=
1947-49=
1947-49=
billions of
billions of
billions of
billions of
billions of
1947-49=
1947-49 =»
100
100
100
$
$
$
$
$
100
100
129p
173
—
2 4 .6p
4 3.8 p
24. bp
11.8 p
253p
241p
1947-49= 100
1947-49= 100
1947-49= 100
billions of $
1939 = 100
thousands
thousands
hours
thousands
9 0.8
109. Sp
114.6
—
—
4 8 ,248p
15,984p
40. Ip
2,893
millions of $
millions of $
millions of $
millions of $
millions of $
1947-49 = 100
millions of $
86,410p
6 9 ,660p
104,240p
30,017p
65,826
122 .5p
—
126
174
94p
2 3.3
4 3.8
24.1
11.6
14. Ip
263
226
124
172
89
23.6
43.7
24.5
11.7
14.2
253
217
129
159
96
2 4.3
48.9
21.6
9 .6
14.1
176
255
90.5
109.7
114.5
2 85 .9p
259p
48,167
15,878
39.9
2,741
9 0.8
110.0
114.7
286.6
259
48,054
15,789
39.7
3,099
86,300p
6 7 ,790p
1 0 3 ,140p
29,958
60,118
116.3
21,952
2,617
5,095
3,343
+
+
+
2
1
6
6
#
-f 2
+ 2
- 1
- 4
+ 7
#
4- 9
- 4
+ 1
- 7
+13
+23
+ 1
+44
— 5
8 7.4
109.8
115.0
287.2
253
49,422
16,901
40.0
1,428
#
#
#
#
#
#
+ 1
+ 1
+ 6
+ 4
#
#
- 1
+ 3
- 2
- 5
#
—
8 3 ,330p
6 7 ,250p
101,200p
29,931
62,546
119.4
21,935
78,280
67,250
100,220
30,282
60,046
119.4
21,907
#
+ 3
+ 1
#
+ 9
+ 5
#
+10
+ 4
+ 4
- 1
+10
+ 3
+ 1
5,280
5,364
3,297
5,396
6 , 248r
3,879
-{-96
-1 4
- 2
- 5
-3 0
-1 5
137
130
219
112.9
7 ,6 2 5 .9
2 ,7 3 6 .1
54,269
4,034
148.1
#
+ 9
- 6
#
#
#
+ 9
+ 8
+ 5
#
+36
-1 1
#
- 3
- 8
+16
+ 6
+10
Banking and finance
Total investments of all commercial banks.................................
Total loans of all commercial banks..............................................
Total demand deposits adjusted.....................................................
Currency outside the Treasury and Federal Reserve B a n k s*..
Bank debits (338 centers)*..............................................................
Velocity of demand deposits (338 centers)*................................
Consumer instalment credit outstandingf §.................................
United States Government finance ( other than borrowing)
Cash incom e........................................................................................
Cash o u tg o...........................................................................................
National defense expenditures........................................................
millions of $
millions of $
millions of $
5,122
4,385
3,286
SEC ON D F E D E R A L R E SE R V E D IS T R IC T
Electric power output (N ew York and New Jersey)*...................
Residential construction contracts*...................................................
Nonresidential construction contracts*............................................
Consumer prices (New Y ork C it y )f ..................................................
Nonagricultural em ploym ent*.............................................................
Bank debits (New York C ity )* ..........................................................
Bank debits (Second District excluding New Y ork C it y )* .........
Velocity of demand deposits (New York C ity )* ............................
1947-49 = 100
1947-49 = 100
1947-49 = 100
1947-49 = 100
thousands
thousands
millions of S
millions of $
1947-49= 100
137
—
—
112.7
—
—
63,212
4,294
162.6
136
175p
195p
112.6
7 ,4 3 0 .8p
2 ,5 3 9.9p
58,210
3,991
154.6
136
160
207
112.7
7 ,4 2 7 .0
2 ,5 4 4 .1
57,317
4,278
150.4
N ote: Latest data available as of noon, December 31, 1954.
p Preliminary.
r Revised.
# Change of less than 0.5 per cent.
* Adjusted for seasonal variation.
% Unemployment figures for Novem ber 1953 are on the basis of the old sample and, therefore,
t Seasonal variations believed to be minor; no adjustment made.
not necessarily comparable with the figures shown for 1954 which are on the new sample
§ Revised series.
basis; consequently, a percentage change from a year ago is not shown.
Source: A description of these series and their sources is available from the Domestic Research Division, Federal Reserve Bank of New York, on request.
@FedFRASER