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BOARD OF e O V E R N O R S D i v i s i o n OF INTERNATIONAL FINANCE February 5, 1961; • H. 13 NO, 136 CAPITAL MARKET DEVELOPMENTS ABROAD -- I, • I, -II. Jaoan: Japan Nine Charts on Financial Markets Abroad Money and Capital Markets in December-January \ ^.Japan turned actively to European capital markets in December and January and raised a t o t a l of # 5 million; but the borrowings were mostly in U.S. dollars and. not in European currencies. Two issues of convertible debentures t o t a l i n g $5 and $15 million were successfully floated in December and a bond issue f o r $25 million was floated in January. These e f f o r t s r e f l e c t the damper placed by the United States' 1 proposed i n t e r e s t equalization tax on Japanese s e c u r i t i e s issues in the U.S. No issues have been placed in the U.S0 since l a s t October. With an increase in imports, however, Japanese acceptance and other indebtedness to U.S. banks has risen sharply since August. Table 1. Japan: Short- and Long-Term Borrowings in the U.So Change during y r . I960 1961 1962 Bank loans!/ Securities^/ l7 2/ a/ 1962 11 I U80 30 J* 212 111 -22 .3L 512 780 353 273 722 250 - 2 0 16 HI -17 8 IV Change during period 1963 II I I I Sent. I 11 29 27 J ! 62 56 118 J& 202 - 7 60 69 0 53 69 Oct. Nov. a/10 • " J . 15 a/111 ~ 0 Short-term l i a b i l i t i e s to U.S. banks, New security f l o t a t i o n s . Preliminary. There are also indications that^the volume of term loans extended p r i marily by UcS. banks to Japan has been r i s i n g . In recent months, Japan has released the following data on intemediate-term foreign loans approved by the Foreign Investment Council: Date Approved Sept. Oct, Oct. Nov. Dec. Jan. 10, 1, 22, 12, 17, 21, 1963 1963 1963 1963 1963 1961 Range of Maturities . Amount $67.0 6,9 18.5 Uh.5 62.1 2U.8 million million million million million million 3 3 2 2 2 2 to 10 years to 5 years y r s . 10 months y r s . 10 months y r s . 10 months yrs. 10 months OFFICIAL USE ONLY (Decontrolled a f t e r 6 months) to to to to 5 years. 12 j e a r s . 21 years. 10 years. 111 OFFICIAL USE ONIX - 2 - Japan continued to experience some balance of payments d i f f i c u l t i e s in December - January, and f o r the t h i r d month in a row, i n t e r n a t i o n a l reserves declined. From the end of October — when reserves reached a peak f o r the year of $1,922 million — through the end of January, reserves declined $6? m i l l i o n . The decline in December and January was $33 and .*.23 m i l l i o n , - r e s p e c t i v e l y , • Primarily because of t h e worsening trend in the balance of payments, the Bank of Japan began t i g h t e n i n g money in December by doubling the commercial bank requirements f o r a l l deposits other than ti-^e d e p o s i t s f o r the l a r g e r banks. This move reportedly r a i s e d t h e reserve deposits of the large c i t y banks in December from W> b i l l i o n t o ¥110 b i l l i o n and contributed to an increase in on-e of the c a l l loan r a t e s by 2 percentage points t o 11,680 p e r c e n t . E f f e c t i v e January 1, 196k, the Bank of Japan also r e i n s t i t u t e d "window guidance" o p e r a t i o n s . This means t h a t c r e d i t s extended to commercial banks by the Bank of Japan w i l l be ra tio ned. Domestic monetary conditions tightened in December but eased in January with the usual seasonal reduction of currency in c i r c u l a t i o n . Call loan r a t e s increased s u b s t a n t i a l l y in December and the average i n t e r e s t r a t e on bank loans and discounts leveled off in October a f t e r a steady decline since November of 1962. Stock p r i c e s reached a low for the year on December 18, but moved up s t e a d i l y in January, Money market. The t i g h t e n i n g in the money market t h a t began in midNovember continued through t h e end of December. Immediately a f t e r the f i r s t of the y e a r , however, t h e marked eased s u b s t a n t i a l l y . The t i g h t e r market in December was due mainly to t h e increase in commercial bank reserve requirements and a ¥lj.l2 b i l l i o n increase i n bank notes in c i r c u l a t i o n . This was only p a r t l y o f f s e t by net Treasury disbursements of ¥2h5 b i l l i o n and Bank of Japan net purchases of s e c u r i t i e s of ¥206 b i l l i o n . During most of January, conditions in t h e money market continued to remain r e l a t i v e l y easy. I n t e r e s t r a t e s . Call loan r a t e s rose s u b s t a n t i a l l y in the l a s t week of November and December, but f e l l sharply a f t e r the f i r s t of the y e a r . The January decline r e f l e c t e d c t h e usual r e t u r n of funds to the banks following heavy consumer spending in December. The r a t e f o r overnight money rose s t e a d i l y from 6.935 per cent on November 27 to 8.395 per cent on December 31, but f e l l back sharply to 6.935 oer cent on January L. The r a t e f o r overmonth-end money (repayable at a day's n o t i c e i n the following month) increased from 8.9h3 per cent on November 28 t o 11,680 per cent on December 30, but dropped t o 9.125 per cent on January 1|. Unlike the i n t e r e s t r a t e s f o r overnight and unconditional (repayable at a day's notice.) c a l l loan money, the r a t e f o r overmonth-end money i s not s u b j e c t t o voluntary c e i l i n g s e s t a b l i s h e d by the bankers and c a l l loan brokers, hence i t i s g e n e r a l l y the highest c a l l loan r a t e . The average i n t e r e s t r a t e f o r bank loans and discounts leveled off in - O c t o b e r , remaining at the same l e v e l as in September. (See Table 2), This r e f l e c t s in p a r t the t i g h t e r monetary policy t h e Bank of Japan i n s t i t u t e d l a s t OFFICIAL UFE ONLY OFFICIAL USE ONLY - -3- f a l l , which included net sales of s e c u r i t i e s in October and November in i t s open market operations, I t appears that the steady decline in the r a t e , which f i r s t - " began in November of 1962, has been h a l t e d , and with the increase i n commercial bank reserve requirements in December, a gradual r i s e in the r a t e now seems likely. Table 2. Japan: Average Monthly I n t e r e s t R&te on Bank Loans and Discounts March June September December 1/ : 1959 I960 1961 1962 1963 8.18 8.28 8.06 8.11 8.21 8.22 8.1k 8.08 7.92 7.88 8.00 8.20 8.22 8.23 8.2k 8.09 7.92 7.75 7.68, 7.681/ \ October. Bank loans and discounts. Bank c r e d i t increased 2.3 per cent in November, somewhat l e s s than the 2.6 per cent r i s e a year e a r l i e r . This r e p resents a r e v e r s a l of the previous trend in 1963 when bank c r e d i t rose at a f a s t e r r a t e than a year e a r l i e r . The r a t h e r high r a t e of increase in 1962 r e f l e c t s the relaxation of the t i g h t money policy in October of t h a t y e a r . Although the November 1963 r i s e in c r e d i t was s u b s t a n t i a l , i t i s possible t h a t i t might have been even higher, in the absence of Bank of Japan net bond sales during t h a t month. Bank deposits in November 1963 rose 3.3 per cent as against 3.5 per cent a year e a r l i e r . Increases i n loans and s e c u r i t i e s holdings in November 1963 were l e s s than a year e a r l i e r , but b i l l s discounted rose 2.0 per cent compared to 1.2 per cent a year e a r l i e r , . The proportion of bank loans and discounts extended f o r purchases of equipment was i 6 . 8 per cent in November. The r a t i o has been gradually increasing since March when i t reached a low f o r the year at 16.3 per cent. Early in Janu-iy the Bank of Japan announced t h a t i t would resume "window guidance" operations, previously discontinued in May of 1963, whereby l i m i t s are placed on the amount of c r e d i t accommodation t h a t commercial banks can obtain from the c e n t r a l bank. For t h e f i r s t quarter of 1961+, the bank intends to extend 10 per cent l e s s in c r e d i t to 13 large c i t y banks than i t d i d . i n the same period a year earlier., This w i l l amount to ¥233 b i l l i o n or 2.8 per cent of t h e outstanding-loan balance of these banks a t the end of 1963. Bond market. New issues of domestic bonds remained a t r e l a t i v e l y high levels in October and November. Total issues in November were ¥138 b i l l i o n , only ¥3 b i l l i o n below the high for the year in September. New issues of nublic corporation debentures at ¥27 b i l l i o n were the same as in October. New issues of indust r i a l debentures at ¥27 b i l l i o n were up ¥2 b i l l i o n from the October level, and bank debentures at ¥83 b i l l i o n were down ¥3 b i l l i o n . OFFICIAL USE (TvLY -b- OFFICIAL USE ONLY Average y i e l d s in November, on l o c a l government s e c u r i t i e s , public corporation bonds, and one-year bank debentures, remained unchanged from l e v e l s e a r l i e r in t h e year at 7.35U, 7.053, and 6.22L per c e n t , r e s p e c t i v e l y . Yields on f i v e - y e a r bank debentures were 7.283 per c e n t , down s l i g h t l y from October, and 7.499 per cent on i n d u s t r i a l bonds, up s l i g h t l y from the previous month. Stock market. In December, stock p r i c e s continued t h e i r general downtrend from t h e peak reached l a s t A p r i l , and the stock average h i t a low f o r the year on December 18 of ¥1,201. This i s 26 per cent below the April 5 high for the year. Stocks recovered s l i g h t l y during the t h i r d week of December but through January 7 were s t i l l near the 1963 low. During the r e s t of January stocks rose s t e a d i l y and on February 3 the average was.¥l,30£, up 9 per cent from the December 18 low. (See Table 3 below). On January 20, lb banks and Japan's f o u r l a r g e s t s e c u r i t i e s companies formed a new e n t i t y e n t i t l e d - ^ he Japan J o i n t S e c u r i t i e s Company with the aim of s t a b i l i z i n g stock p r i c e s through appropriate stock purchasing operations. The ^ new firm has an authorized c a p i t a l of $27.8 m i l l i o n , of which $6.9 million i s p a i d - i n c a p i t a l . The company w i l l l i m i t i t s possession.of stocks in any one company to 10 per cent of the t o t a l volume outstanding. Table 3. Japan; November 25 December 2 9 16 23 28 1/ Dow Jones Average of 225 Stocks, F i r s t Section of Tokyo Stock Exchange 6 13 20 27 ¥1,205 1,259 1,317 1,321 February 3 1,305 January ?i,2U5 1,257 1,259 1,216 1,216 , . 1,225 1 / 1963 High Low ¥1,631 ¥1,201 1961 High Low ¥l,33li ¥1,2014 Last trading day of 1963. Foreign t r a d e . The seasonally adjusted t r a d e d e f i c i t remained large in December, but was down s u b s t a n t i a l l y from a peak in October. In December, season a l l y - a d j u s t e d imports f e l l 1 per cent and exports rose U per c e n t . At a seasonally adjusted annual r a t e , t h e t r a d e d e f i c i t in December was $1.5 b i l l i o n compared to $552 m i l l i o n a year e a r l i e r . The t r a d e f i g u r e s (monthly, or monthly averages, on a customs b a s i s ) in Table U below are based on seasonal adjustment f a c t o r s computed by the Board of Governors of the Federal Reserve System# Table L. I Imports Exports Trade Balance 1962 II HI Japan: IV l\9h 378 U68 Uoe 1^2 ii28 109 -116 - 60 -- 2h - 99 Seasonally Adjusted Foreign Trade (in m i l l i o n s of d o l l a r s ) 1963 L8W 11 545 bh2 582 U62 6ii2 188 - 73 -103 -120 -I51i I III OFFICIAL USE ONLY IV Oct. 661 188 -173 ' Nov. Dec. 637 178 628 h99 -159 -129 -5- OFFICIAL USE ONLY During calendar 1963, exports rose 11 per cent to $5.1+ b i l l i o n (as measured on a customs b a s i s ) , and imports increased 20 per cent to $6.7 b i l l i o n . The r e s u l t i n g trade d e f i c i t of $1.3 b i l l i o n was s u b s t a n t i a l l y higher than the $720 b i l l i o n d e f i c i t in 1962. Foreign reserves and c a p i t a l flows. I n t e r n a t i o n a l reserves f e l l $33 million in December and a f u r t h e r $23 million in January to $1,855 m i l l i o n . This marks the t h i r d consecutive monthly declined from the 1963 high of $1,922 million i n October, suggesting the beginning of a new general downtrend in reserves following the gradual increase since January 1962. The balance of payments, as measured on an exchange t r a n s a c t i o n s b a s i s , continued to r e g i s t e r a d e f i c i t on current amount in December, when i t was $56 m i l l i o n . Long-term c a p i t a l receipts at $9U million were high, but with long-term payments of $38 million and net short-term payments of $U2 m i l l i o n , the surplus on c a p i t a l account was only $lli m i l l i o n . Since reserves f e l l only $33 million, While recorded net payments t o t a l e d Slj.2 million, errors andomissions account f o r the $9 million d i f f e r e n c e , Results on an annual b a s i s are indicated in Table 5 below. Table 5» Japan: Foreign Exchange Receipts and Payments V (in millions of U . S . dollars) ' 1963 1962 1961 +5,356 + 883 +1,787 + 813 +3,993 + 78U >6,239 +5,600 -li,51i6 -1,017 +1,777 -U,92U - 937 -5,563 + 38 --5,861 -1,085 Current transactions . 1 . Receipts: commodity trade 2 . Receipts: services Total commodity trade services H O 3W 3 . Payments: ii. Payments: -6,813 - 57k Total 5» Current account balance Capital t r a n s a c t i o n s 6. Long-term c a p i t a l r e c e i p t s 7. Long-term c a p i t a l payments Net balance 80 Short-term capitals net balance 9. Capital account balance 10. Current and c a p i t a l a c c ' t . balance 11. Errors and omissions 12. Net overall balance 1/ + . + • + + + - + 750 282 L68 177 6L5 71 3h 37 + - + + . + + L58 197 #2 172 h3h ;• 172 - 116 + 3# 319 ^ 1S6 + 163 + 610 T~ 773 312 26 338 - Data include only foreign exchange t r a n s a c t i o n s and thus omit t r a n s a c t i o n s taking place without an exchange settlement such as r e p a r a t i o n s , sales to UN f o r c e s , consignment s a l e s , yen c r e d i t s and donations in kind. Numbers may not t o t a l due. to rounding. OFFICIAL USE ONLY OFFICIAL USE ONLY -6- According to preliminary r e p o r t s , Japanese short-term l i a b i l i t i e s t o U.S. banks increased §111 million in November to $1,983 m i l l i o n . (See Table 6 below). The r i s e r e f l e c t s l a r g e l y an increase in the outstanding l e v e l of commercial acceptances. Table 6. Jan. 1959 1960 1961 1962 1963 168 362 875 1,601 1,697 Feb. Mar. Apr. Short-term Claims by U.S. Banks on Japan ( i n m i l l i o n s of U.S. d o l l a r s ) Jtejr 20U 2!i2 22k 175 L20 250 U88 372 952 1,069 1,159 1,196 X 1,685 J - L , |1,778 [ U -L, II J 1,762 )1 1,775 1,691 1,751 1,876 1,896 1,869- 1,872 793 1,862 NOTE: Data f o r 1962 and 1963 have been r e c e n t l y revised and include $52 million reported by banks i n i t i a l l y as of December 31, 1961. a/ Preliminary. ^ With the i n t e r e s t e q u a l i z a t i o n tax s t i l l pending before the U.S. Congress Japan continued to take steps to r a i s e f o r e i g n c a p i t a l outside of the United S t a t e s On December 10, the Takeda Chemical Co: any s u c c e s s f u l l y f l o a t e d $15 million in 6 per cent, 20-year convertible debentures in the European market. Shortly l a t e r on December 16 the Canon Camera Company issued $5, m i l l i o n in 6-l/lj. per c e n t , 15-year convertible debentures in Europe. L a s t l y , the c i t y and p r e f e c t u r e of Osaka success f u l l y f l o a t e d t h e i r t h i r d bond issue of %25 m i l l i o n (DM 100 m i l l i o n ) in Germany on January 7. The 15-year issue c a r r i e d a 6 - 1 / 2 per cent r a t e of i n t e r e s t . E a r l i e r issues-of $25 million each were f l o a t e d i n February of 1962 and March of 1963. The Japanese s t i l l intends to i s s u e before April of I96I4.. government's plans f o r next f i s c a l year which Minister of Finance announced in December t h a t Japan $52.5 million i n government bonds in the U.S. market In a d d i t i o n , he said t h a t t h e r e had been no change in the i s s u i n g $125 million in s e c u r i t i e s overseas in Japan's begins April 1, 1961+. Foreign exchange. The yen remained r e l a t i v e l y weak in t h e spot market during the f i r s t t h r e e weeks of December, but strengthened subsequently through January 13. The r a t e in t h e three-month forward market remained f a i r l y s t a b l e during t h i s neriod„ The strengthening in the spot market caused the forward d i s count t o r i s e from 0.20 per cent on December 23 t o a peak of 1.03 per cent on January 9. For a d d i t i o n a l d e t a i l s , see Table 7 below. OFFICIAL USE ONLY -7- OFFICIAL USE ONLY Table 7. Japan: Customer's T. T. Exchange Rates of Bank of Tokyo, in Tokyo Yen-dollar spot middle rate Three-month forward middle rate Forward discount i n per cent C per annum Nov. 29 362.30 362.53 .25 Dec. 6 13 20 27 31 362.30 362.30 362.30 361.90 361.70 362.53 362.50 362.18 362.b5 362.1+8 .25 .22 .20 .61 .86 Jan. h 10 111 361.90 361.70 362.10 362.18 362.18 362.50 .61). .86 .hh Asia, Africa and Latin America Section. II. Chart Chart Chart Chart Chart Chart Chart Chart Nine Ctiarts on Financial Markets Abroad - I n t e r e s t Arbitrage, United States/Canada - I n t e r e s t Arbitrage, New York/London - I n t e r e s t Arbitrage f o r German Commercial Banks - I n t e r e s t Arbitrage, Frankfurt/London - S h o r t - t e r m I n t e r e s t Rates - Long-term Bond Yields - I n d u s t r i a l Stock Indices - Spot Exchange Rates - Major Currencies Against U.S. Dollar Chart 9 - 3-month Forward Exchange Rates 1 2 3 L 5 6 7 8 OFFICIAL USE ONLY i INTERNATIONAL 3-M.ONTH EURO Wcdnesdoy figuret MONEY DOLLAR MARKET YIELDS FOR DEPOSIT VS. U.S. U.S. DOLLAR CERTIFICATE OF INVESTORS DEPOSIT Per cent pe YIELDS EURO-DOLLAR DEPOSIT U . S . C E R T I F I C A T E OF D E P O S I T DIFFERENTIAL: EURO-DOLLA R OVER U . S . C E R T I F I C A T E O F D E P O S IT — — - ~ l 1 NEW 1 YORK OFFER 1 1 RATES 1 ON 1 1 SELECTED i . TREASURY 1 1 3-MONTH 1 BILL, -Fully 1 1 ! i r i Hedged — — — — CANADA 1 1 INVESTMENTS - xy* U.S. v U.K. 1 COMMERCIAL U . K . HIRE P U R C H A S E DEPOSIT CANADIAN FINANCE C O M P A N Y k U.S.FINANCE COMPANY 1963 PAPER.'- Fully Hedged — INTEREST A R B I T R A G E , Thursday r 1 3-MONTH UNITED STATES / CANADA Per ceht per < figu 1 r TREASURY BILL R A T E S RATE D I F F E R E N T I A L A N D FORWARD CANADIAN DOLLAR IN F A V O t O f C A N A D A + FORWARD BATI Discount I LlLLkd L A : L__ J — I : I DIFFERENTIAL WITH F O R W A R D I RATE . .. 1 L — I F EXCHANGE COVER NET I N C E N T I V E IN F A V O B OF C A N A D A I I I 1 I I 1 I I M . J- S D I I I I II M „ J S D + i u i iI i i [ i i I i i I i i I i i i s o * i s e" ': 1NT1R1ST ARBITRAGE, NEW Y O R K / L O N D O N Friday flgui 3-MONTH TREASURY — RATE BILL RATES LONDON " DIFFERENTIAL AND 3-MONTH FORWARD STERLING ~ S M « » I * / A > 0 1 Of 10ND0N V-x RATE DIFFERENTIAL WITH FORWARD L- 1961 ; EXCHANGE COVER 1 1964 v° \\ INTEREST A R B I T R A G E FOR G E R M A N COMMERCIAL B A N K S Friday lig 3-MONTH EURO TREASURY DOLLAR BILLS, I N T E R B A N K DETQSTT RATES LENDING 1 RATE A N D T GERMAN TREASURY BWKS RATE D I F F E R E N T I A L A N D FORWARD DEUTSCHE MARK F O R W A R D BATE D I S C O U N T ( - ) I N T E R B A N K L O A N RATE RATE DIFFERENTIAL WITH " NET I N C E N T I V E : ! FORWARD I EXCHANGE COVER | IN F A V O R OF F R A N K F U R T ( + ) INTERBANK LOAN R A T E J ^ \ / VVNI — 1963 1964 SHORT-TERM INTEREST RATES * - f'v ! h ! C NA0A * V i 0- $. v I iijMyvv X A V ^ f swm 1111 1 M 1 i i ii i i i i i i i l 1 I l 1 1 l 1 1i II iiiiiiiiii 1 1 I1 1 1 1 1 I960 1961 3- month treoiury bill rolet I or oil countries encepl Jopon j and Switzerland (3 month depoiit role). "j",3-month role lor U 5 dollar deposit! in London 1962 1963 (Averoge role on bonk loom ond d i n o u n l i l ' 1964 LONG-TERM BOND YIELDS w INDUSTRIAL ' '' STOCK INDICES ^9sa=ioo ; • R o t l o ital* f G , ERMANY 200 ISO : SO i. Swiii Bank Corporation Industrial itock ir **Jopan: index of 2 2 5 induilrial and other ilpckt traded on the Tokyo exchange SPOT EXCHANGE RATES - M A J O R CURRENCIES AGAINST U.S. DOLLAR FRENCH FRANC .DUTCH GUILDER 1964 P . r C 3-MONTH AGAINST FORWARD U.S. EXCHANGE BATE DOLLARS P.r c m per GERMAN MARK AGAINST POUND STERLING - LONDON 1 PRE M I U M + - - Mv, SWISS t BANC < ^ A 4 - 5 5 / 1 - - 1 1 AGAINST 1 1 POUND i i 1 1 STERLING f 1 1 D IS CC>UNT — 1 1 1 1 - LONDON • BLVIftlV fMHV 1 1 1 1 1 1 1 1 1 1
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