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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 K R N O U
F E D E R A L RESERVE SYSTEM
H'^
December 22, 1965.
|CAPITAL MARKET DEVELOPMENTS ABROAD
No. 227 |
I.
II.
III.
I.
Japan:
Japan
Nine Charts on Financial Markets Abroad
Latest Figures Plotted in H. 13 Chart Series
Money and Capital Markets in November-December 1965
The main reactions in Japan to the December 5 increase in the Federal Reserve'
discount rate included an increase of 0.25 percentage points in the rate on dollar
import bills, and increases in the maximum rates payable on Euro-dollar deposits.
On December 9 Japanese foreign exchange banks raised the principal rate on
U,S. dollar import acceptance bills from 7.00 to 7.25 per cent. This contrasts with
the current rate of 6.94 per cent for comparable domestic financing. As a result of
the increased relative attractiveness of the domestic bills, manufacturers and leading
commercial houses may make greater use of domestic bills instead of the dollar import
bills, thus placing some downward pressures on Japanese international reserves as
Japan finances less of its trade overseas.
On December 7 and 8, the authorities raised the maximum interest rates
which Japanese foreign exchange banks may pay on Euro-dollars. The largest change
over the December 1 level was three-eights percentage points for two categories. (See
Table 1). This move was taken in response to a substantial increase in the level of
Euro-dollar rates in other financial centers, following the Federal Reserve's discount
rate increase, and was prompted by Japan's desire to maintain its current level of
Euro-dollar deposits.
Table 1.
Effective:
Less than 30 days
1 - 3 months
3 - 6 months
6 - 1 2 months
1 year and over
Japan:
9/9/65
4.25
4.5
4.625
5.125
5.5
Maximum Authorized Rates on Euro-dollar Deposits
10/5/65
4.25
4.625
5.0625
5.25
5.5
10/11/65
12/1/65
12/7/65
12/8/65
4.25
4.75
5.25
5.375
5.625
4.25
5.375
5.375
5.5
5.75
4.25
5.675
5,675
5.675
5.75
4.25
5.75
5,75
5.75
6.0
In November, Japan floated its third bond issue of the year in the United
States for $20 million, bringing the total amount issued in 1965 to $62,5 million, far
short of the $100 million that Japan could have issued this year under its exemption
OFFICIAL USE ONLY
(Decontrolled after 6 months)
OFFICIAL USE<aPNLY
2
-
from the Interest Equalization Tax. Preliminary data for September show that Japanese
short-term borrowing fell by $73 million while long-term borrowings declined by $4
million a (See Table 2). There has been a general decline in Japanses borrowings, as
reported by U.S. banks, since mid-year.
Japan:
Short- and Long-term Borrowing in the U.S.
(in millions of U.S. dollars)
Change during yr.
1962 1963 1964
Short- term claims.!^ 212
Long-term claims
50
TOTAL
Securities^/
TOTAL
_1/
2/
a/
b/
jd/
I
1964
II III
69
Change during period
1965
July Aug.
IV
I
II
S
431 632^/
175 181^/
229
62
MI
24
26
262
606 813
291
83
50 389
141
200
0
0
_0
_0
40%. 806 813
291
83
0
50 389
-47
42
- 5
0
- 5
15
J_
15
-_4
-49
3
22
11
-46
23
20
0
45
31
-46
M
-62/
Sept.
-73£/
- 4£/
-772/
0
lo
Table 2.
-62/
-772/
Bank-reported liabilities to the U.S.
New security flotations„
Includes $150 million newly reported in December.
Includes $45 million newly reported in December,
Preliminary,
NOTE:
Data on shorLr. and long-term claims since early 1962 have recently been revised
substantially by the U.S. Treasury.
International reserves continued their uptrend in November, rising $88 million
to a level of $2,086 million. On the other hand, the seasonally adjusted trade balance
turned negative in November, and there is now evidence that Japan's trade surplus may
be disappearing. In the foreign exchange market, the yen strengthened in both the spot
and forward markets during the first half of November, and the premium in the forward
market rarrowed substantially c
On the domestic side, most interest rates continued to decline moderately in
response to easy money market conditions„ Bank credit expansion slackened in October
as the business outlook continued generally dull. The bond market was active, with
large amounts of new bonds issued in August and September. The stock market also
recovered in August-November, reaching a new two-year high on December 2.
Money market, Money market conditions continued easy in October-November as
a result of net expansionary developments, In both months heavy.net Treasury payments
more than offset the contractionary impact from Bank of Japan operations and changes in
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bank notes in circulation. In November, for example, the contractionary impact from a
¥205 million reduction in Bank of Japan credit and a ¥54 billion increase in bank notes
in circulation was more than offset by net Treasury payments of ¥278 billion.
Interest rates. Call loan rates were reduced again on October 1 for the
fourth time since last May. During October, November and the first part of December,
rates remained unchanged. (See Table 3).
Table 3.
Japan:
Average Call Loan Money Rates in Tokyo
(per cent)
Overnight —^
September
25
Unconditional —^
5.840
Over-month-end —^
6.205
6.935
Throughout October
5.475
5.840
6.570
Throughout November
5.475
5.840
6.570
5.475
5.475
5.840
5.840
6.570
6.570
December
4
11
\f For settlement on the following day.
2/ Repayable at a day's notice.
_3/ Repayable at a day's notice in the following month.
The average interest rate on commercial bank loans and discounts continued
to decline through October, reaching 7.66 per cent. This contrasts with last December's
peak of 7.99 per cent.
On November 29 the Ministry of Finance ordered a cut, effective January 1,
1966, of 0.3 percentage point in the standard long-term interest rate charged by the
government-owned Japanfs e Development Bank, and the Hokkaido-Tohoku Development Finance
Corporation. The Finance Minister asked other long-term lend fr^einstitut ions to reduce
their rates by a comparable amount, and the Industrial Bank of/Jap>an and the Japan Longterm Credit Bank have reportedly complied. This move, the first such action since April
1961, is aimed at further stimulating economic recovery. Table 4 below indicates the
current level of rates.
Table 4.
Japan; Long-term Interest Rates
(In per cent per annum)
Japan Development Bank
Long-term Credit Bank
Prospective Dividend for
Loans in Trust
Electric Power Bonds
Bank bonds
1/
1/
8.7
8.7
2/
3/
4/
7.37
7.487
7.285
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\
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- 4 -
Table 4 (Continued)
Gov't Guaranteed Bonds
Gov' t B o n d s Short-term
Long-term
Bank Bonds
Time Deposits
Postal Savings
NOTE;
3/
I
7.053
6.685
6.432
6.2245.00
5.00
(1) iTtStKJIa'rd rates; (2) five-year term; (3) interest yields to subscribers;
(4) interest-bearing; (5) discounted; (6) six-month t-erm; (7) time deposits
under 1 year.
Bank lgans and discounts. Bank credit in September, and in the July-September
quarter, expanded "Nat almost exactly the same rate as during the corresponding periods
in 1964 „ This year, however, the credit increase was more in direct lending, and less
in discounting of bills, Deposits rose at a faster rate than in 1964.
In October, the rate of bank credit
credit rose only 0.7 per cent compared to 1.5
0.2 per cent in contrast to a rise of 0.7 per
per cent compared to a drop of 2.7 per cent a
expansion slackened substantially. Total
per cent a year earlier. Bank loans fell
cent a year earlier. Deposits fell 2.4
year earlier.
Since a cyclical low in December of last year, the proportion of bank credit
extended for purchases of capital equipment has generally increased. After dipping to
17.4 per cent in September, the ratio increased to 17.5 per cent in October, the same
level as in August.
.
/
^
Bank of Japan operations were sharply contractionary
itraxTtTIo
in October and November„
(See Table 5). The siphoning-off of liquidity resulting from sales of securities was
only partially offset by an increase in loans. As indicated earlier, however, net
Treasury payments more than offset this contraction in Bank of Japan credit.
Table 5.
Japan:
Changes in Bank of Japan Loans and Holdings of Securities
(in billions of yen)
(1)
Period
1963
I Quarter
II Quarter
III Quarter
IV Quarter
(2) + (3)
Net increase (+)
or decrease (-)
+ 158.2
- 109.2
+ 202.4
+
18.0
(2)
Loans: Increase (+)
or decrease (-)
+ 59.1
- 198.7
+ 91.3
+ 81.2
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(3)
Net purchases (+) or
sales (-) of securities
+
1
+ 89.2
+ 129.1
+ 99.2
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5 -
Table 5 (Continued)
(1)
Period
1964
I Quarter
II Quarter
I H Quarter
IV Quarter
1965
I Quarter
II Quarter
III Quarter
September
October
November
(2) + .(3)
Net increase (+)
or decrease (-)
+ 203.3
+
75.7
+ 106.1
- 329.6
r
' +
+
-
217.5
124.0
89.8
104.6
124.9
205.3
(2)
(3)
Loans: Increase (+)
or decrease (-)
Net purchase^ (+) or
sales (-) ^if/securities
4- 36.7
+ 121.0
+ 97.5
- 300.5
+ 166.6
- 196.7
+
8.6
- 29.1
+ 216.5
- 14.4
+ 133.1
- 24.1
+
65.3
+ 21.0
1.0
109.6
43.3
80.5
190.2
226.3
/
Bond market. The monthly value of new bond issues continued to rise in
August and September. In August, new bond issues rose to ¥205 billion, up from the
July level of ¥180 billion. Most of the increase was accounted for by a rise from
¥37 billion to ¥ 56 billion in new issues of public corporation bonds. In September,
fr.ew issues of public! corporation bonds rose further to ¥84 billion, boosting total
'*bond issues to ¥241 K n . l l i o n . New issues of industrial debentures were ¥7 billion
higher than in Augustspd issues of bank debentures increased ¥2 billion.
Bond yields in October were unchanged
government securities, public corporation bonds
at the 1964 rates of 7.354, 7.053 and 6.244 per
term bank debentures was down slightly to 7.277
bonds also fell slightly to 7.487 per cent.
or lower. Average yields on local
and one-year bank debentures remained
cent, respectively. The yield on longper cent, and the yield on industrial
Heavy selling of bonds by city banks between September and early November
slowed down at the end of November. The banks have been anxious to reduce their
holdings of long-term securities in order to minimize the impact on their assets of the
impending underwriting of large amounts of government bonds.
The first parcel of long-term government bonds for 1966, amounting to about
¥80 billion., is expected to be offered in the second week of January. At the request
of the Ministry of Finance, a syndicate of Japanese governmental and private
institutions is underwriting the issue. Members of the syndicate will negotiate with
the Bank of Japan regarding the issue price. The Finance Ministry has decided on an
interest rate of 6.75 per cent exclusive of commission.
Stock market. The stock market seems^go have recovered fully from its
midsummer slump. On December 2 the Dow-Jones stock average reached a two-year high of
¥1,409, but then eased moderately through December 20.
(See Table 6). The advance
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\
- 6 -
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stock issues as real estate
has not been widespread but rather has been led by such :
shipping, soft drinks and construction.
,
Table 6.
Japan :
September
27
¥1,233
Oc tober
4
11
18
25
1,204
1,219
1,249
1,233
1
1,268
November
Dow-Jones Average of 225 Stocks , First Section of Tokyo Exchange
November
December
8
15
22
29
¥1,284
1,304
1,344
1,360
6
13b
20
1,315
1,340
1,367
1964
High
Low
¥1,369
¥1,203
1965
High
Low j
¥1,409
¥1,020
The Japanese Government has been concerned that much of the recent upsurge has been due
to unstable, speculative purchasing. Reflecting this concern, the Ministry of Finance
increase stock margin requirements for various issues from 30 to 40 per cent on November
10 and again, on December 2, from 40 to 50 per cent.
Foreign trade. There are signs that Japan's trade surplus may be disappearing.
In both September and November there were deficits on trade account--the first since
December 1964; and the November deficit of $30 million was substantially larger than the
modest deficit of $5 million incurred in September. (See Table 7.)
Table 7.
Seasonally-Adjusted Foreign Trade, Monthly or Monthly Averages a/
(in millions of d&tfars)
Japan:
1964
Imports
Exports
Balance
I
II
III
IV
664
485
•179
655
534
632
571
61
697
618
- 79
I
659
679
+ 20
II r
III
July
690
711
+ 23
676
738
+ 62
652
750
+ 98
1965
Aug. Sept
670
765
+ 95
705
700
- 5
677 734^{
698 704^/
+ 21 - 302/
a/ All figures on a customs basis
b/ Preliminary.
After reaching a peak in August, seasonally-ad justed exports have been at
substantially lower levels. At the same time, imports picked up in September and in
November reached an all-time high.
Foreign reserves and capital flows. International reserves rose $29 million
in October, reflecting the generally good—performance on trade account. In November
reserves increased a further $88 million to a level of $2,086 million.
The ratio of international reserves to the note issue of the Bank of Japan
continued to rise from the July low of 33.7 per cent and reached 35.6 per cent at the
end of November, reflecting a rise in reserves and a decline in note issue.
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Table 8.
Japan:
Ratio of Reserves to Bank Notes
International
Reserves
(billions of yen)
of Period
1959
1960
1961
1962
196%
1964 June
September
December
¥520.9
701.6
599.8
727.9
740.9
697.3
698.0
719.6__
1965
726.8
724.7
712.8
702.0
707.0
708.8
719.3
751.0
April
May
July
August
September
October
November
- 7 -
Bank Notes
Issued
(billions of yen)
Reserves/
Bank Notes
¥1,029.4
1,234.1
1,480.1
1,745.9
2,057.4
1,860.6
1,836.1
2,298.8
50.6
56.9
40.5
41.7
36.0
37.5
38.0
31.3
2,032.8
1,975.4
2,078.3
2,083.1
2,038.2
2,033.2
2,053.2
2,107.4
35.8
36.7
34.3
33.7
34.7
34.8
35.0
35.6
Although the current account surplus of $129 million in October was less than
the $135 million achieved in September, over - all reserves increased in October,
primarily because of a reduction from $125 to $109 million in the deficit on capital
account. (See Table 9.)
Table 9.
Japan:
Balance of Payments on an Exchange Transactions Basis
(in millions of dollars)
1964
IV
I
71
-39
33
94
-•42
51
28
33
-54
-_55
h i -
Trade account balance
Services balance
Current account
Net long-term capital
receipts
Net short-term capital
receipts
Net balance on capital
account
Errors and omissions
Over-all balance of
payments
NOTE:
Aug.
Sept,. Oct.
152
-51
101
175
-59
116
ill
135
186
-57
129
-22
-15
-19
-37
-13
-80
-104
-90
-61
-88
-96
-126
-105
-80
-125
-109
- 9 0 — ""^19
2
- 2
9
34
8
29
III
51
-44
7
85
^58
27
173
256
117
123
^55
68
5
-10
-24
-44
n
26
-22
16
-54
-103
- 5
16
- 6
-11
- 8
1
13
17
r 37
6
Quarterly data are monthly averages.
1965 \
July
II
t 38
-23
192
Data may not add exactly because of rounding
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OFFICIAL USE ONLY
-
8
-
According to preliminary data, Japanese short-term liabilities to the U.S.,
as reported by U.S. banks, fell by $73 million in September, reducing the liabilities
by $121 million below the peak level reached in June. (See Table 10.)
Table 10.
Jan.
1959
1960
1961
1962
1963
1964
1965
168
326
875
1,601
1,697
2,247
2,738
Feb.
175
372
952
1:,685
1.,691
2.,340
2, ,741
Short-term Claims on Japan Reported by U.S. Banks
(in millions of U.S. dollars)
Mar .
204
420
1,069
1,778
1,751
2,400
2,856
Ma%.
ART.
224
456
1 ,159
1.,775
1.,876
2,,394
2.,827
242
488
1,196
1,762
1,898
2,421
2,856
June
July
260
497
1,272
1,758
1,872
2,469
2,871
256
586
1,341
1,765
1,877
2,416
2,822
Sept.
Aug.
269
628
1,335
1,767
1,798
2,472 ,
2,823f/
Oct.
262
262
660
693
1,288 1,281
1,711 1,710
1,890 1,904
2,493 2,488
2,750a/
Nov.
275
711
1,292
1,662
2,017
2,496
Dec
324
806
1,528
1,740
2,171
2,803
NOTE:
Data for 1962, 1963, and 1964 have been revised and include $52 million reported
by banks initially as of December 31, 1961. The December 1964 figure includes
$150 million in newly reported data.
a/ Preliminary.
Long-term Japanese liabilities to the United States, as reported by U.S. ; banks,
fell $4 million in September to $471 million according to preliminary data. (See ^able
11.) Long-term claims are now $12 million below a peak level reached last May.
Table 11.
1959
1960
1961
1962
1963
1964
1965
Long-term Claims on Japan Reported by U.S. Banks
(in millions of U.S. dollars)
Jan.
Feb.
Mar.
Apr.
May
June July
Aug.
13
16
19
24
74
280
455
14
16
19
25
74
295
454
15
14
18
31
76
311
472
15
14
19
28
83
319
479
17
14
18
29
104
323
483
17
14
19
49
111
325
479
16
15
21
18
19
25
54
54
136
143
351
332
475-a/ 47L£/
16
18
20
50
119
329
482
Sept.
Oct.
Nov.
Dec
15
21
23
62
146
352
16
19
25
69
170
269
16
19
24
74
249
430
NOTE:
Data for recent years have been revised and the December 1964 figure includes
$45 million in newly reported data.
a/ Preliminary.
A new $20 million debenture of the Japan Development Bank was marketed in the
U.S. on November 22, and it was sold out immediately. The 15-year bond has a coupon
rate of 6.5 per cent, and was sold at 97.75 per cent of par value, yielding 6.741 per
cent. This yield to subscribers is reportedly the highest on any Japanese foreign bond
issue in the post-war period.
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- 9 -
OFFICIAL USE ONLY
Foreign exchange. The yen strengthened steadily in the spot market during
October and the first half of November. The middle rate for the yen in terms of
dollars fell to 361.25 on November 15. The yen weakened in the forward market during
October, rising to an eight-week high at the end of the month. In November, however,
the yen strengthened reaching 361.00 on November 15. The forward premium, which
reached the very high level of 1.38 per cent at the end of September, narrowed
gradually to 0.28 per cent on November 15.
Table 12.
Japan:
Customer's T.T. Exchange Rate of Bank of Tokyo in Tokyo
Three-month
forward middle
rate
Yen-dollar
spot middle
rate
Forward premium
in per cent
per annum
September
27
362.35
361.20
1.27
October
4
11
18
25
362.10
362.30
362.15
362.20
361.20
361.20
361.40
361.45
.99
1.21
.83
.94
November
1
8
15
362.10
362.80
361.25
361.60
361.40
361.00
.55
.44
.28
Asia, Africa and Latin America Section.
OFFICIAL USE ONLY
I N T E R N A T I O N A L
3 -M O N T H
Wednesday
M O N E Y
MARKET
YIELDS
E U R O D O L L A R
figures
DEPOSIT
VS.
FOR
U.S.
DOLLAR
CERTIFICATE
OF
INVESTORS
DEPOSIT
U.S. CIITIFICATI OF DEPOSIT
|
E U R O - D O L L A R OVER |
U.S. C E R T I F I C A T E OF D E P O S I T
SELECTED
Friday I ig
INTERNATIONAL
M O N E Y
RATES
E U R O - D O L L A R DEPOSIT RATES ( L O N D O N )
/?» Dv rJTP T^rJ
COMMERCIAL
PAPER-Fully Hedg
U.K. HUE PUICHASE
CANADIAN FINANCE
COMPANY
U.S. FINANCE COMPANY
InlJViV
VlM
*
/ •
INTEREST A R B I T R A G E , U N I T E D STATES / C A N A D A
M O N T H TREASURY BI UU RATES
BIL
RATE DIFFERENTIAL A N D F O R W A R D C A N A D I A N D O L L A R
SPREAD IN F A V O E OF CANADA
- f/-
I DISCOUNT" -
— 3 - M O N T H C O V E R E D RATE D I F F E R E N T I A L S (NET I N C E N T I V E S )
1962
Thursday figures 196 2, Friday t hereaher.
1963
1964
MAS
INTEREST A R B I T R A G E , N E W Y O R K / L O N D O N
Friday figures
3 - M O N T H T R E A S U R Y BILL RATES
RATE D I F F E R E N T I A L A N D
FORWARD STERLING
3-MONTH
SPREAD IN FAVOR Of LONDON
. / w s
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 )
IN FAVOR OF NEW YORK
J
D
1962
M
*
19*3
1964
$
19*5
CHART 4 was not published in this issue.
8
SHORT-TERM INTEREST R A T E S *
•VI
X'
|
v,\
v-
CANADA
1144
"X" 3-month Ireosury bill roles lor oil countries except Jopon.
and Switzerland (3-monlh deposit ra!i)
"|" 3 month role for U.S. dollar deposits in London
(Average role on bank loom and discounts)
•XL O N G - T E R M BOND YIELDS
J —
V"
. - Z—
INDUSTRIAL STOCK INDICES
telle i<«le
SWITZEIIAND
CANADA — r ;
100
*
Swin Bonk Corporation industrial stock.
* *
Japan: index of 22 5 industrial and othe
>A
SPOT EXCHANGE RATES - MAJOR CURRENCIES AGAINST U.S. DOLLAR
<•"'
Above par
SWISS FRANC
-
L V
A
1
1
1 1
m
i i
J
11
V
\ A
iV
ITALIAN LIRA
L:
\)5?7 "
l? "7
I
/
JAPANESE YEN
1 1
S
I I 1 1 1
0
*
-
1 1
J
i i
s
I l
B
1 l<-- 1 1
M
J
1 1
s
0
por
H. 13
No.
December 22,
1965
Latest Figures Plotted In H.13 Chart Series, 1965
Per cent
per annum
Chart 1
Upper panel
(Wednesday, Dec
Chart 5
(Friday, Dec. 17
,
except as noted)
15
Treasury hills:
Euro-$ deposit
5 ^ 0
U.S. certif. of deposit
4.76
U.S.
Lower panels
(Friday, Dec. 17
Euro-dollar deposit
Finance Co. paper:
)
Call
7-day
30-day
90-day
180-day
4.75
5^62.
5^56
U.K.
5 ^ 1
Germany
3.88
Canada
4.44
Swiss 3-month deposits
(Date 'Nov. 15
)
3.94
5 ^ L
Euro-$ deposit (London)
5.56
U.S.
4 ^ 8 _
Canada
Japan: composite rate
(Date; Sept. 24
)
3.680
5 ^ 4
Chart 6
Bonds:
Chart 2
(Friday, Dec. 17
)
Canada
U.S.
Spread favor Canada
+0.04
Forward Canadian dollar
-0.67
Net incentive (Canada +)
-0.63
U. S. govt.
(Wed. , Dec. 15
4.52
U.K. war loan
<Thurs. , Dec. 16
6.61
German Fed. Railway
(Fri. , Dec. 10
Swiss Confederation
(Fri., Dec. 10
3.98
Canadian govt.
(Wed., Dec. 15
Chart 3
(Friday, Dec. 17
Treasury bills:
LJzO
W 2
Hire-purchase paper, U.K.
Treasury bills:
Per cent
per annum
)
U.K.
5.36
U.S.
4.40
Spread favor U.K.
t&JAG
Forward pound
-JU02
Net incentive (U.K. +)
-0.06
For
F
or d
description
e s c r i p t i o n and
and
September 53, 1964.
Netherlands government
perpetual
(Fri.^ Dec. 10)
5.59
sources of data see special annex to H. 13 Number 164,
@FedFRASER