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BOARD OF G O V E R N O R S DIVISION O F I N T E R N A T I O N A L F I N A N C E F E D E R A L RESERVE SYSTEM H. 13 August 3, 1962 No. 70 1 j ( CAPITAL MARKET DEVELOPMENTS ABROAD LIBRARY AUG 5 1962 i FXDEiu-u, TilSSEflV2 • BANK • f I OF RICHMOND Io I. IIo Japan% Japan Nine Charts on F i n a n c i a l Markets Abroad Money and C a p i t a l Markets i n June With a c o n s i d e r a b l e improvement i n t h e Japanese balance of payments i n May and June, the M i n i s t r y o f Finance announced on July 25> t h a t the w a i t i n g p e r i o d f o r remittance of c a p i t a l by f o r e i g n investor's would be reduced from two y e a r s to s i x months on August 1, 1962. The r a t e of Japanese f o r e i g n borrowing showed s i g n s of s l a c k e n i n g during the second quarter. For example, Japanese l i a b i l i t i e s t o U.S. banks t o t a l l e d $1,678 m i l l i o n i n May compared with the peak of $ 1 , 6 9 8 m i l l i o n i n March. The reduced borrowing may have r e f l e c t e d i n p a r t t h e improved t r a d e account i n May and June, Should t h e trend over t h e p a s t few months continue i n t o the f u t u r e , Japan may a c h i e v e balance-of-payments equilibrium i n t h e second h a l f o f t h i s y e a r . Money market c o n d i t i o n s through June remained r e l a t i v e l y t i g h t and c a l l loan r a t e s were h i g h e r . A sharp expansion i n c e n t r a l bank c r e d i t • eased strong s e a s o n a l cash demands i n connection with t a x and bonus payments. Average i n t e r e s t r a t e s remained r e l a t i v e l y steady through May. The reduced l e v e l o f new c a p i t a l i s s u e s in May r e f l e c t e d i n part the a t t r a c t i v e r a t e s i n the c a l l loan market. Money Market.—A very l a r g e i n c r e a s e i n Bank of Japan c r e d i t i n June had the e f f e c t of e a s i n g somewhat money market conditions5 n e v e r t h e l e s s , c a l l loan r a t e s continued t o remain f i r m . Because of the l a r g e cash demands f o r June summer bonus payments and c e r t a i n tax o b l i g a t i o n s f a l l i n g due, bank n o t e s i n c i r c u l a t i o n r o s e ¥98 b i l l i o n and the Treasury had a surplus of ¥28 b i l l i o n . These c o n t r a c t i o n a r y developments were more than o f f s e t by an ¥18 b i l l i o n i n c r e a s e i n Bank of Japan bond h o l d i n g s and a ¥ 2 i i l b i l l i o n expansion i n Bank of Japan loans and d i s c o u n t s . I n t e r e s t Rates.—The average i n t e r e s t r a t e f o r bank l o a n s and d i s c o u n t s r o s e only s l i g h t l y i n A p r i l t o 8.220 per cent per annum from 8.216 per cent i n March. Since December 1961, the average r a t e has r i s e n o n l y 0 . 0 2 percentage p o i n t s . This c o n t r a s t s with a s u b s t a n t i a l r i s e during t h e l a s t h a l f of 1961 f o l l o w i n g i n c r e a s e s i n t h e Bank of Japan's b a s i c , d i s c o u n t r a t e i n July and September. While i n t e r e s t r a t e s have l e v e l e d o f f , it. i s p o s s i b l e t h a t s t r i c t e r enforcement of compensatory balance requirements may have added t o monetary s t r i n g e n c y t h i s y e a r . NOT FOR PUBLICATION DECONTROLLED AFTER SIX MONTHS V NOT FOR PUBLICATION Average Monthly I n t e r e s t R a t e s on Bank Loans and D i s c o u n t s March June September December 1959 I960 8.1&#.08 8.06 8 oil 8.21 8.22 8.11 8,08 1961 1962 7.92 7.88 8.00 8.20 8.22 1/ April C a l l l o a n r a t e s i n c r e a s e d somewhat i n Ju n e 5 as t h e r a t e f o r l o a n s c a l l a b l e a t a d a y 5 s n o t i c e r o s e t o 11,68 p e r c e n t from 1 0 . 9 5 p e r c e n t i n May. Bank Loans and Discounts»—Bank c r e d i t i n May r o s e a t about t h e same r a t e as a y e a r e a r l i e r 0 Because of t h e heavy i n c r e a s e i n h o l d i n g s of s e c u r i t i e s i n A p r i l , t h e April-May i n c r e a s e i n bank c r e d i t was 3 d p e r c e n t , somewhat h i g h e r t h a n t h e 2ck p e r c e n t i n c r e a s e a y e a r e a r l i e r 6 As i n d i c a t e d i n t h e t a b l e below, t h e r a t e of i n c r e a s e i n l o a n s and d i s c o u n t s i n April-May was l e s s than a y e a r e a r l i e r s b u t t h i s was more t h a n o f f s e t by t h e 1 2 . 5 p e r c e n t i n c r e a s e i n s e c u r i t y h o l d i n g s , D e p o s i t s i n t h e April-May p e r i o d r o s e o n l y 0c6 p e r c e n t compared t o l 0 i+ p e r c e n t a y e a r e a r l i e r « Commercial Bankss ~ ' Q u a r t e r l y Changes i n D e p o s i t s and P r i n c i p a l A s s e t s ( I n b i l l i o n s of y e n ) * Per"* cent D e p o s i t s Change Loans I960 I II III IV +2U9 + 96 +506 +607 1961 I Apr.-May ' II III . - ; IV +502 +133 +169 +359 +L30 +128 1962 I Apr.. -May + 59 MAIN ASSETS Per Per ~~ cent Bills cent Change D i s c o u n t e d Change S e c u r i t i e s Per % cent Change +176 +167 +2Uh +3L7 3.8 3,5 L.9 6.7 + 5L + 87 +172 +185 2.5 3.9 7.5 7.5 + •78 + 75 + 35 +127 ho3 +326 + 92 +206 +216 +232 5.9 1.6 3.5 3.6 3,7 + 18 + 85 +133 +206 +220 1.8 3.1 U.9 7.37.2 +103 + 69 +10U + U3 +122 2.5 6.9 1.2 0,6 +256 + 63 3.9 0.9 + 111 + 75 0„i| 2.3 - 6U +229 -3cU 12.5 3ch lo3 6.5 7=3 l.lt 1.8 3=8 NOT FOR PUBLICATION 6.5 5.8 2.6 „ 9.1 6.8 ho2 6oh NOT FOR PUBLICATION - 3 - The proportion of bank loans and discounts extended for purchases of equipment remained a t 17.h per cent i n May, the same l e v e l as i n A pril. Bonct Market. —New i s s u e s of debentures in May, t o t a l i n g ¥83 b i l l i o n , were at the lowest l e v e l s i n c e April 1961 and were o f f ¥3 b i l l i o n from the l e v e l i n the previous month. There was a general d e c l i n e i n the volume of i s s u e s f o r a l l categories between April and May as new i s s u e s of bank debentures f e l l ¥2 b i l l i o n to ¥£6 b i l l i o n , public corporate debentures dropped ¥ 1 b i l l i o n t o ¥16 b i l l i o n and i n d u s t r i a l debentures declined ¥1 b i l l i o n to ¥11 b i l l i o n . This probably r e f l e c t s i n part the increasing a t t r a c t i v e n e s s of the c a l l loan market where y i e l d s are s u b s t a n t i a l l y above those for bonds and debentures 0 The average y i e l d s on various bonds and debentures remained unchanged i n May from the l e v e l s since January-^ but the y i e l d on i n d u s t r i a l debentures rose s l i g h t l y i n May from the April l e v e l . Stock Market.—Stock p r i c e s moved up i n June and the f i r s t nine days of July, but declined during the r e s t of July. The r i s e from ^he low of May 30 t o the high of July 9 was 9 per c e n t . Following a £ per cent d e c l i n e through July 28, stocks were up s l i g h t l y i n the following three trading days. Dow Jones Average of 22]? Stocks Tokyo Stock Exchange May 30 ¥1,362 June 6 13 20 27 1,147 1,1*35 1,1*33 1,1*30 J u l y It 11 18 25 ¥1,1471; 1,1*68 1,179 1,1*50 Aug. 1 1,1*12 1961 High Low ¥1,830 1962 High Low ¥1,590 ¥1,3U2 ¥1,250 Foreign Trade.—In May and June there was a s u b s t a n t i a l narrowing i n Japan's trade d e f i c i t as indicated by the seasonally adjusted data i n t h e t a b l e below. The trade d e f i c i t , at a s e a s o n a l l y adjusted annual r a t e , f e l l to $0.7 b i l l i o n i n the second quarter compared t o $1„5> b i l l i o n in the f i r s t quarter. I f p a s t favorable trends continue, i t i s l i k e l y that balance of payments equilibrium w i l l be achieved i n the l a s t h a l f of t h i s year. The s e a s o n a l l y adjusted trade f i g u r e s (monthly, or monthly averages, on a customs b a s i s i n m i l l i o n s of d o l l a r s ) i n t h e table below are based on seasonal adjustment f a c t o r s computed by the Bank of Japan , under the U.S. census method0 NOT FOR PUBLICATION I NOT FOR PUBLICATION « il - Exoorts Imports I960 Year IV 338 355 371 #5 - 36 - ho 1961 Year I II III IV 353 3L3 351 357 36U U8U U27 I16L #6 516 -131 - 8U -113 -11x9 -182 1962 I Jam Feb, Mar= II Apr, May June hll 35ii 382 378 h09 361 hhl h20 192 L97 U98 U81 L66 182 hll L39 -121 -lii3 -116 -103 - 57 -121 - 30 - 19 Trade Balance Exchange R e s e r v e s and C a p i t a l F l o w s c — J a p a n ; s i n t e r n a t i o n a l r e s e r v e s r o s e $37 m i l l i o n i n June t o $1,623 m i l l i o n , While r e s e r v e s have been r i s i n g s t e a d i l y s i n c e l a s t December, a l a r g e p a r t of t h e r i s e r e f l e c t s f o r e i g n s h o r t - t e r m borrowing 6 The b a l a n c e of payments, a s measured on an exchange t r a n s a c t i o n s b a s i s , - c o n t i n u e d t o improve i n June* The c u r r e n t account d e f i c i t d e c l i n e d from SbE> m i l l i o n i n May t o $U m i l l i o n i n June* This improvement, which was l a r g e l y on t r a d e a c c o u n t , more than o f f s e t a d e c l i n e i n b o t h n e t , s h o r t - t e r m , , and l o n g - t e r m , c a p i t a l r e c e i p t s from $75 m i l l i o n i n May t o $59 m i l l i o n i n June, With n e t outpayments of $18 m i l l i o n u n d e r e r r o r s and o m i s s i o n s , t h e o v e r - a l l b a l a n c e of payments r e g i s t e r e d a s u r p l u s of $37 m i l l i o n compared t o $ 2 7 . m i l l i o n i n May* J a p a n e s e s h o r t - t e r m l i a b i l i t i e s , t o t h e U n i t e d S t a t e s as r e p o r t e d by U.S. banks have d e c l i n e d from a high p o i n t r e a c h e d i n March„ In t h e f i v e months p r e c e d i n g t h e end of March s l i a b i l i t i e s r o s e $Ul7 m i l l i o n t o $1,698 m i l l i o n o A f t e r dropping $3U m i l l i o n i n A p r i l , J a p a n e s e s h o r t - t e r m l i a b i l i t i e s r o s e $lU m i l l i o n i n May t o $1,678 million«, a l e v e l s t i l l below t h e March p e a k . Jane Feb.Mar. Apr= May June a/ 1959 I960 168 175 20U 22U 2L2 260 362 372 U20 L56 L.88 h91 1961 1962 l;5ll >52 1,598 1,069 1,698 1,159 s / l ^ 6 L 1,196 y 1,678 - July Auge Septo Oct. Novo Dec, Preliminary estimatec NOT FOR PUBLICATION 19* I960 1961 256 269 262 262 275 32U 586 6# 660 693 711 806 1,311 1,3.35 1,288 1*281 1,292 1,UU5 NOT FOR PUBLICATION The evident slackening i n the r a t e of Japanese f o r e i g n borrowing during the second quarter of t h i s year was r e f l e c t e d i n figures released on the l e v e l of Japanese Euro-dollar borrowings. On July 12 the Bank of Japan announced that during June, Japanese bank deposits of Euro-dollars f e l l $2 m i l l i o n to a t o t a l of $316.£ m i l l i o n . In part t h i s d e c l i n e was a l s o due t o window-dressing operations of European banks at mid-year. On July 25, Japan announced t h a t e f f e c t i v e August 1 , 1962, the two-year waiting period f o r withdrawal of non-resident funds from i n v e s t ment i n Japan would be reduced to s i x months. This applies t o the proceeds from the s a l e of s t o c k s , bonds, and investment t r u s t s which were o r i g i n a l l y purchased with f o r e i g n exchange. Because the new waiting period i s r e t r o a c t i v e , a l l f o r e i g n investors may withdraw/their funds i f they have already completed the six-month waiting period, ' Foreign Exchange.—Yen-dollar exchange rates remained r e l a t i v e l y s t a b l e during June and the f i r s t h a l f of July. Throughout June, the yend o l l a r spot rate remained at the o f f i c i a l support l e v e l . In the f i r s t week of July, the r a t e s f o r the yen against the d o l l a r strengthened s l i g h t l y in both t h e spot and the forward markets, but i n the second week of July the r a t e s returned to t h e i r June l e v e l s . From June U through July 11;, the three-month forward rate remained at par with the spot r a t e . Customer's T.T. Exchange Rates of Bank of Tokyo in Tokyo Yen-dollar spot middle r a t e Three-month forward middle r a t e May 25 361.10 361.25 .17 June 1 8 15 22 29 361.10 361.10 361.10 361.10 361.10 361.25 361.10 361.10 361.10 361.10 .17 July 6 13 361.05 361.10 361.05 361.10 Date Asia, Africa, and Latin America S e c t i o n . NOT FOR PUBLICATION Forward discount i n per cent per annum — I N T E R E ST A R B I T R A G E , Thundoy figures THREE-MONTH UNITED TREASURY STATE S / C A N A DA BILL R A T E S U N I T E D STATES RATE DIFFERENTIAL A N D FORWARD CANADIAN DOLLAR S P R E A D IN FAVOR OF CANADA + A / RATE DIFFERENTIAL W I T H 1 A*/i V L I rx i / M r A v ^ v ^ r FORWARD EXCHANGE COVER NET I N C E N T I V E IN FAVOR OF CANADA + „.LL D INTEREST ARBITRAGE, 3-MONTH TREASURY NEW YORK/LONDON BILL RATES RATE D I F F E R E N T I A L A N D j " " 3 - M O N T H FORWARD STERLING SPREAD IN F A V O R OF L O N D O N 1 ! 1 1 1 : RAT E DIF F E R E N T I A l . W I T H ~ F O F ( W A R D EX(: H A N G E C O V E R 1 1 - J - \ 7 R V A A „ ! 1 At 1 -1 J 1 1 S 11 1959 I I D M 1 1 J 1960 1 1 S 1 1 D NEW' A 1 1 M 1 1 J 1961 - 1 1 $ 1 1 D 1 1 M 1 1 J 1962 1 1 $ 11 0 % C h o r i 3^ INTEREST ARBITRAGE FOR GERMAN COMMERCIAL B A N K S Friday figures 3-MONTH Per cent p e r a n n u m v TREASURY .EURO-DOLLAR BILLS, INTERBANK DEPOSIT LENDING RATE A N D RATES ' - r \ G E R M A N I N T E R B A N K LOAN RATE RATE D I F F E R E N T I A L AND FORWARD DEUTSCHE MARK J 1 N—. T R E A S U R Y BILLS RATE D I F F E R E N T I A L WITH _ _ _ N E T INCENTIVE FORWARD . FAV EXCHANGE 0 R OF f R A H K F U R COVER (+ ) I N T E R B A N K LOAN RATE 19 60 19 61 1962 INTEREST ARBITRAGE, Friday FRANKFURT / L O N D O N figures " 3 - M O N T H TREASURY BILLS A N D I N T E R B A N K L E N D I N G RATES - j | ——+ G E R M A N TREASURY 8 I U S — \ A GERMAN" I N T E R B A N K RATE D I F F E R E N T I A L A N D | - 3 - M O N T H FORWARD STERLING — S P R E A D IN F A V O R Of UNITED K I N G D O M BILLS O V E R ) '\ GERMAN I N T E R B A N K 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— M I960 , 1961 1962 SHORT-TERM \ , 1 INTEREST \ RATES -X* • r\ U.I. 1 fv-S \ > / 1 1 1 1 1 1 1 1 1 1 1 1 , J j h \ 1 — \ XZ EUBO-DOUAB - 11DMDOlX U S W K " " ' 1 1 1 1 1 1 1 1 1 1 1 1951 L \ tr' INY S 1 1 II 1 1 1 1 1 1 1 1 1 1 1 1161 1 1 II 1962 3 month Ireoiury bill ralei for oil couniriel except Jopon (3-month interbank depoiit rale) and Switzerland (3-month depotil rale) . , "j" 3-month role tor U S dollar deposit! in London. 1 1 1 I LO.NG-TERM N BOND YIELDS \ V \ lv] .... GERMANY V 1 1 V \/"V\ i i I I.I I I i II 1 1 II II M u.s. i i i i i i i i i ii II II I I I 1 1 1 1 .11.1-1-1 1-U.,LLLLU-1J-1-LLI I I I. I960 1961 1 1 1 1 1 1 1 U i u INDUSTRIAL STOCK INDICES* , 1958=100 Ratio stole iso JAPAN ^ CANADA 1962 ' V 3 - - ' O f uXCHANCE / K t? A T L S \ j ^ SWISS - K M A J O R % fRANC C U R R E N C I E S X \/lJ: A G A I N S T U.S. DOLLAR p ^ 14 3-;AO;iTII FORWARD EXCHANGE RATES •Per c e n t AGAINST U . S. D O L L A R S : SWISS f«AHC POILND S T E R L I N G AGAINST POUND STERLING - L O N D O N ll\A AGAINST POUND STERLING - L O N D O N FRENCH FRANC A per an n u m
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