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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 G O V E R N O R S F E D E R A L RESERVE SYSTEM H. 13 April 14, 1965. No. 191 CAPITAL MARKET DEVELOPMENTS ABROAD I. I, II, III. Japan Nine Charts on Financial Market? Abroad Latest Figures Plotted in H. 13 Chart Series Japan: Money and Capital Markets in February-March The Japanese authorities took several further steps in March and April to relax the tight money policy. The process of relaxation culminated in an April 3 reduction in the basic discount rate of the Bank of Japan from 6.205 to 5.84 per cent, the second reduction in the past four months. Earlier, in mid-March, quarterly credit expansion quotas for the large city banks had been substantially liberalized. Also, on April 1, advance import deposit requirements were reduced to the level prevailing prior to the establishment of the tight money policy. As a result of these moves., the major monetary restraints introduced since December 1963 have all been relaxed tc. trie level-', prevailing at that time. The latest moves were prompted by the improved balance of payments situation and the desire to reduce the financial pressures which contributed to the high rate of bankruptcies, Because of rising rates on Euro-dollar deposits in London, several upward adjustments were made in March in the recommended rates that Japanese foreign exchange banks may pay for Euro-dollars. (See Table 1), The rises in rates in London hit a peak on March 10 c.nd then eased off slightly; the authorized rates in Japan were also cut back late in March, Table 1. Japan: Effective: Less than 30 days 1 - 3 months 3 - 6 months 6 - 12 months 1 year and over Maximum Authorized Rates on En.ro-dol lar Deposits (in per cent per annum) 12/31/64 4,125 4.5 4.625 4.875 5.0 2/24/65 4.125 ' 4.625 4.75 4,875 5.25 3/ 4/63 3/11/63 3/15/65 3/25/65 4.375 4.875 5.0 JLiZj 5.43/5 4.3/5 5.125 5.3,5 5,625 6.25 4,375 5.125 5.25 5.625 5.875 4.375 4.875 5.25 5,5 5.875 Japanese liabilities to the U.S. increased $34 million in January. (See Table 2). This represented a substantial decline from the December increase which reflected largely seasonal developments. OFFICIAL l'3E 0 Y1.; (Decontrolled after 6 months'; - 2~ Table 2. Japan: Short- and long-term Sorrowings in the U.S. Change dur ir.g 1960 1961 1962 1963 1964 Short-term claims 1/ Long-term claims 1/ 482 3 722 5 212 50 TOTAL 2/ Securities — 485 727 262 _30 -28 515 785 TOTAL 1/ 2/ a/ 403 431 I Change during period 1964 Dec. IX III IV 69 229 _6_x 12 24 26 I60i / 14S/ 20^ 606 618^/ 290 84 50 19,2/ 120^ 200 _0 . _0 __0 _0 0 0 806 6,8-/ 290 50 193^ / 120^/ 84 1965 Jan. 34~ 7 _0 34— 7 Bank-reported liabiliti es to New security flotations Preliminary. NOTE: ant e early 1962 have recently been Data on short- and long-term revised substantially by the ;J,S, Treasury. Japanese long-term borrowings lor March-A.pril may be at a higher level than in earlier months in view of the recent approval of r.wo large 1T,S. loans. On March 23 the Japanese Foreign Investment Co„r.cil approved a $10 mill ion5 7-year credit from the First National Cl tv Bar k of New York to a petro-chemical concern, and a $22 .4 million - 8* year, ;• an i iuir. the C r. a= e Manhattan Bank to the Japan Air Lines Company. International reserves rose S3 mi; lion in March t'j $2,053 mi] lion. The trade balance, on a seasonally adj :.5t e 3 b as i f, improved sharply in JanuaryFebruary. In the foreign exchange market- the yen weakened m February and the first part of March. On the domestic side, mc-r.ey market conditions remained relatively easy, There were signs of increased bark x. red it: and more*: at y a^pai -icn. and with the latest cut in discount rate, v •"-.rest rate- a re likely t.c ease, Tne stock market sank to a new four—year low r \ March , Money market, Following a ir p ea??>.g in ,:i,rvc.ry, mo.-ey market, conditions remained relatively stable in leer vary-March. Sivre early last October, credit conditions in the. money marker ha e gere rally- eased. Expansionary and contractionary factors approximate'.: > offset *-:ach. other in February, An increase of ¥155 billion in Bank of lap a" credit ^ m c - t matched rlne contractionary impact from net Treasury receipts or ¥.; 34 bi l.vc-' and an increase of ¥34 billion in bank notes in circulation. OTi.CIAl USE 0Nl-V Interest rates. Over-month-end call money (repayable at a day's notice in the following month) eased slightly from 9.490 per cent on January 30 to 9.125 per cent on February 1. Otherwise, call loan rates remained unchanged through March 27. With the reduction in the Bank of Japan's basic discount rate on April 3, call loan rates are likely to ease further in April. Call loan rates have generally fallen from the peak levels reached last year in September. Table 3. Japan: Overnight — ^ Average Call Loan Money Rates in Tokyo Unconditional — ^ Over-month-end —^ January 30 8.030 8.395 9.490 February 6 13 20 27 8.030 8.030 8.030 8.030 8.395 8.395 8.395 8.395 9.125 9.125 9.125 9.125 March 6 1.3 20 27 8.030 8.030 8.030 8.030 8.395 8.395 8.395 8.395 9.125 9.125 9.125 9.125 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 monthly interest rate on Dank loans and disccunts remained at 7.99 per cent during July-December. This stability followed a gradual rise since February 1964 when the rate was 7.67 per cent. In view of the January and April cuts in the Bank of Japan's basic discount rate, it is likely that the average interest, rate eased slightly during the first part of this year. Late in March, Keidanren (a Japanese businessman's organization comparable to the United States11 National Association of Manufacturers) recommended to the Government that yields on corporate bonds be raised 0 . 4 of 1 per cent in April, of this year in order to improve the outlook for bond issues this year. If the Ministry cf Finance and the Bank of Japan approves, this would have the effect of raising industrial bond yields from approximately 7.5 per cent to 7.9 per cent. Bank loans and discounts„ Although bank credit generally rose at a slower rate last year, there may have been a reversal of this trend in January when total bank credit increased 1.1 per cent, compared to only 0.5 per cent a year earlier. The main rise was in. holdings of securities which OFFICIAL USE increased 6.5 per cent as against i.9 per cent a year earlier. Changes in loans and discounts were relatively minor. Deposits fell 3.3 per cent in January, the same as a year earlier. The proportion of bank loans and discounts extended for purchases of equipment rose slightly to 17.1 per cent in January from a seasonally low 17.0 per cent in December. Since the previous cyclical low of 16.3 per cent in March of 1963, the ratio has generally increased, Bank of Japan operations in February tended to be expansionary as the Bank purchased (net) ¥119 billion in securities and expanded its loans by ¥36 billion. Table 4. Japan: Changes in Bank of Japan Loans and Holdings of Securities (in billions of yen) (i) Period (2) + ( 3 ) Net increase (+) or decrease ( - ) (2) Loans: increase (+) or decrease ( - ) (3) Net purchases (+) or sales ( - ) of securities 1963 I II III IV Quarter Quarter Quarter 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 1964 I II III IV Quarter Quarter Quarter Quarter + 203.3 - 75.7 + 106.1 - 329.6 36.7 121.0 97.5 300.5 + 166.6 - 196.7 + 8.6 - 29.1 November December - 256.2 - 13.2 126.9 222.4 - 129.3 + 209.2 1965 January February - 42.2 + 155.2 114.8 36.4 - 157.0 + 118.8 In mid-March the Bank ot Japan announced that city bank credit expansion quotas would be substantially relaxed in the second and third quarters of this year. In addition, city banks will henceforth be required to observe the quotas by the end of a six-month, rather than a three-month, period. Bond market, Following a sharp increase in December, new bond issues fell to ¥158 billion in January, a decline of ¥18 billion from the high for the year reached in December. New issues of bank debentures were ¥96 billion in January, down ¥23 billion from the December level, but new issues of OFflCIAL o E ONIV public corporation bonds were up ¥1 billion to ¥36 billion. New issues of industrial debentures also rose ¥3 billion to ¥25 billion. Since last August the volume of new bond issues has generally been rising and the January volume was 22 per cent higher than the level a year earlier. In January average yields on local government securities, public corporation bonds, and one-year bank debentures remained the same as throughout 1964 at 7.354, 7.053 and 6,224-per cent, respectively. The yield on long-term bank debentures fell slightly to 7.285 per cent while the yield on industrial bonds rose to 7.482 per cent from 7.469 per cent in December. Stock market. The stock market, which has generally remained depressed since mid-1964, sank to new four-year lows in March. News of the financial failure of Sanyo Special Steel Company, Japan's major producer of bearing steel, is generally credited with causing the Dow Jones average to fall below the ¥1,200 support level on March 8. Although the market remained orderly thereafter through April 5, stock prices continued to hover below the ¥1,200 level, In response to the reduction in the Bank of Japan's basic discount rate on April 3, stock prices rallied slightly, but then fell to a new low for the year on April 4. Table 5. January Japan: Dow Jones Average of 225 Stocks, First Section of Tokyo Exchange 25 ¥1 ,250 1 8 15 1.,243 1:,259 1.,250 March 1 8 15 22 29 5 April . ¥1 ,206 1.,191 1:,188 1.,170 1-,119 ,124 1964 1965 High Low High ¥1:,369 ¥1 ;,203 ¥1.,290 ¥1.,115 Foreign trade. According tc the Bank of Japan's seasonally adjusted data, the trade balance improved very sharply in January-February, shifting from a deficit of $92 million in December to a surplus or $5 million in January, and to equilibrium in February. This improvement reflects increased export levels and slightly lower imports compared to the fourth quarter of last year. The trade figures in Table 6 below are m o n t h l y o r monthly averages, on a customs basis, seasonally adjusted. I 491 418 - 73 Table 6. Japan: 1963 II III IV 576 469 -107 643 484 -159 539 438 -1.01 Seasonally Adjusted Foreign Trade (in millions of dollars) 1964 I 664 485 -179 II III IV 655 534 -121 632 521 - 61 697 618 - 79 Nov. 701 625 - 76 Dec. 697 605 - 92 1965 Jan. Feb. 663 668 + 5 674 674 0 - 6- Foreign reserves and capital flows. International reserves rose $3 million in March to $2,053 million. This brought the reserve gain since last year's low in October to $147 million. The ratio issues by the Bank cent in February. years as indicated of Japan's gold and foreign exchange holdings to note of Japan fell from 37.2 per cent in January to 37.0 per This decline continues the general downtrend in recent in the data in Table 7 below. Table 7. End of Period 1959 1960 1961 1962 1963 1964 1965 Japan: Rates of Reserve to Bank Notes March June September October November December January February 3520.9 701.6 599.8 727.9 740.9 718.6 697.3 698.0 686.2 692.6 719.6 729.7 738.0 Reserves/ Bank Notes Bank Notes Iss ued International Reserves 50 .6 56 .9 40 .5 41,.7 36,.0 40,.5 37,.5 38,.0 37.,1 36,.7 31.,3 37.,2 37. 0 ¥1 ,029 .4 billion 1 ,234 .1 billion billion 1 ,480 1.,745,.9 billion 2,,057,.4 billion l',774,,8 billion 1.,860,,6 billion 1:,836,.1 billion 1.,847.,6 billion 1.,889,,3 billion 2. ,298,,8 billion l ] ,961., 2 billion 1;,995.2 billion billion billionbillion billion billion billion billion billion billion billion billion billion billion per per per per per per per per per per per per per cent cent cent cent cent cent cent cent cent cent cent cent cent The trade surplus cf $95 million in February as measured on an exchange transactions basis., helped boost total international reserves $23 million. (See Table 8 below). As during the last half of 1964, a net outflow on short-term capital account continued in February, but this was more than offset by the trade surplus, Table 8. Japan: Trade account balance Services balance Current account Balance of Payments on an Exchange Transactions Basis (in millions of dollars) 1963 IV 1 II 1964 -13 -38 -51 93 - 36 -129 - 37 - 37 - 74 71 - 39 33 42 Net long-term capital 34 receipts 23 Net short-term capital receipts 99 Net balance on capital 52 account 122 Errors and omissions -11 14 Over-all balance of 21 - 9 payments are month NOTE: Quarterly data ; rounding. Nov. Dec, 1965 Feb. Jan. 51 71 - 41 30 131 - 47 84 - 77 - 33 -110 95 - 42 53 28 33 29 32 27 26 —42 - 54 - 55 I_28 —52 128 JL_63 84 - 30 - 26 5 - 22 - 16 1 - 14 -22 - 7 155 - 17 - 37 7 -20 erages, 111 94 zJ& 1 13 18 55 28 23 lata ma 7 no t add exactly because of OFFICIAL USE ONLY -7- Preliminary data indicate that Japanese short-term liabilities to the U.S. (as reported by U.S. banks) rose $14 million in January to $2,667 million. This is $420 million higher than the level a year earlier. Table 9, Jan. Feb. Short-term Claims on Japan Reported by U.S. Banks (in millions of U.S. dollars) Mar. Apr. Max June Au Jul* 1959 168 175 204 224 242 260 256 1960 326 372 420 456 488 586 497 1961 875 952 1,069 1,159 1,196 1 ,272 1,341 1962 1 ,601 1 ,685 1,778 1,775 1,762 1 ,758 1,765 1963 1 ,697 1 ,691 1,751 1,876 1,898 1 ,872 1,877 1964 2 ,247 2 ,340 2,400 2,394 2,421 2 ,469 2,416 1965 2 ,667±/ NOTE: Data for 1962, 1963 and 1964 have been revised banks initially as of December 31, 1964. a/ Preliminary. g° Sept. Oct. Nov. 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 2,549 Dec. 324 806 1,528 1,740 2,171 y 2,653f Z and include $52 million reported by There were no reported bond issues in foreign markets in March, but Japan placed one issue in February. This was for $25 million (DM 100 million) by the City and Prefecture of Osaka in Germany for 15 years at a coupon rate of 6-1/5 per cent. In April, Japan is scheduled to return to the U.S. market with a $20 million, 15-year, 5-3/4 per cent issue by. the Nippon Telegraph and Telephone Public Corporation, Foreign exchange. After strengthening in December and January, the yen tended to weaken in the spot market in February and the first half of March. The February weakening largely reflected a strengthening of the dollar following the special U.S. balance-of-payments restraint measures of February 10. The threemonth rate in the forward market, although fluctuating irregularly, generally weakened during February and part of March, but less rapidly than the rate for the yen in the spot market. The net result was a narrowing in the three-month forward discount from 2.40 per cent at the end of January to .89 per cent on March 15. Table 10. Japan: Customer's T.T. Exchange Rate of Bank of Tokyo in Tokyo Yen-dollar spot middle rate March Three-month forward middle rate Forward discount in per cent per annum 30 358.55 360.70 2.40 1 8 15 22 358.70 358.50 358.75 359.10 360.70 360.70 360.70 361.15 2.23 2.45 2.17 2.28 1 8 15 360.00 360.30 360.55 361.10 361.55 361.35 1.22 1.39 .89 OFFICIAL USE ONLY Out 1 INTERNATIONAL 3-MONTH EURO MONEY MARKET YIELDS DOLLAR DEPOSIT VS. J _ V . A / f j V i Y £1 D s j U.S. * - j s DOLLAR — OF INVESTORS DEPOSIT aV ! EURO-DOll AR DEPOSIT n ^ FOR CERTIFICATE I \ _ f I - z r U.S. CERTIFICATE OF DEPOSIT ~ ] i EURO D O L L A R OVER | U.S. CERTIFICATE OF DEPOSIT I | 1 1 1 SELECTED 1 1 i j 1 i 1 M l INTERNATIONAL U ! 1 MONEY M ; I ! i 1 I I ! 1 1 1 1 RATES EURO DOLLAR DEPOSIT RATES ( L O N D O N ) CANADIAN FINANCE i 1 I 1 1 1 1 1 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 Tigu r e l ' M O N T H T R E A S U R Y B ILL R A T E S 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 "3 - M O N T H COVERED RATE DIFFERENTIALS (NET INCENTIVES)- INTERES G E, N E W . Y O R K / L O N O O N 3 -M ON T H TREASURY BILL RATES ; RATE DIFFERENTIAL FORWARD R ATE AND lONDON 3-MONTH STERLING DIFFERENTIAL 1962 WITH FORWARD 1963 EXCHANGE ^ O V ER (NET 1 964 INCENTIVE) 1 9 6 51 INTEREST ARBITRAGE 3-MONTH FOR i TREASURY EURO-DOLLAR GERMAN I BILLS, DEPOSIT COMMERCIAL I INTERBANK LENDING BANKS RATE AND RATES EURODOLLAR LONDON GERMAN INTERBANK L O A N RATE G E R M A N T R E A S U R Y BILLS RATE DIFFERENTIAL AND FORWARD DEUTSCHE MARK ~V RATE ! ! DIFFERENTIAL WITH < T FORWARD EXCHANGE A INTERBANK L O A N RATE T COVER (NET INCENTIVE) I —-J\.N \ IN F A V O R OF L O N D O N EURO D O L L A R S 1963 196 4 196 5 SHORT-TERM INTEREST RATES * "V <A vfvxv~v-*\ u. K . | r>-/ CANADA 3 m o n t h t r e a s u r y bill rates lor nil t n u n i ' i . i f * r e p I I n p o n a n d S w i t z e r l a n d (3 m o n t h d e p o s i t r o l p j ~f" 3 - m o n t h r a t e (or U S d o l l a r d e p o s i t m L o n d o n s * ( A v f r o q f r at r on b a n k l o a n s a n d d i s c o u n t s ) L O N G - T E R M BONO YIELDS P»r c« n t par on n I N D U S T R I A L STOCK INDICES i»»->oo Rati* icele . 350 ! 250 A b o v DUTCH G U I l D i R ) CANADIAN DOLLAR V cr T par 3 - M O N T H FORWARD Friday figures EXCHANGE RATES AGAINST U.S. DOLLARS AGAINST POUND STERLING - LONDON AGAINST POUND STERLING - LONDON Per c e n t p e r ann April 14, 1965 No. B 1 Latest Figures Plotted In H. 13 Chart Series, 1965 III, Per cent per annum Chart 1 Upper panel (Wednesday Per cent per annum Chart 5 (Friday, April 9 , except as noted) April 7 ) Treasury bills: Euro-$ deposit U.S. certif. of deposit 4. 26 Lower panels (Friday, ,\?ril 9 Euro doll ars . ) Call - 7-day 30-day 90 day 1 80- day Finance Co. paper: U. K. 6.32 Germany 3. 12 Canada 3.50 4.12 iiS 3.06 5A2 Euro-$ deposit (London) 4.75 U.S. 4. 23 Canada Japan: composite rate (Date; Dec. 31 ) 7.990 4. 90 4,75 Chart 6 4. 59 Bonds: Chart 2 (Friday, April 9 U.S. govt. (Wed. , April ) Canada 3c 50 U. S. 3. 90 Spread favor Canada -0.40 Forward Canadian dollar + 0- 47 Net incentive (Canada +) +0.07 Chart 3 (Friday,April 9 Treasury bills: 3.90 Swiss 3-month deposits (Date;March 15 ) Hire-purchase paper, U.K. Treasury bills: U.S. ) U.K. 6.32 U.S. 3.90 Spread favor U.K. +2.42 Forward pound -2, 97 Net incentive (U.K. +) -0,55 For description and sources September 23, 1964. 7 U.K. war loan (Thurs., April 6.54 8 German Fed. Railway (Fri., April 9 ) Swiss Confederation (Fri. , April 2 ) 3.91 Canadian govt. (Wed., March 31 ) 5. 06 Netherlands government perpetual (Fri,, March 26 ) 4.96 of data see special annex to H. 13 Number 164,
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