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\ BOARD OF OOVSRNOM . DIVISION OF INTERNATIONAL FINANC H. 13 July 13, 1962 No. 67 . CAPITAL MARKET DEVELOPMENTS ABROAD I. II. I. Japan Nine Charts on Financial Markets Abroai Japan: Money and Capital Markets in May During Japan's recent balance of payments difficulties, foreign borrowing through May continued to rise substantially, more than offsetting the deficits on current accounte Since the Japanese do not release information on their aggregate foreign liabilities, it is difficult to report accurately on this subject. However, data are available on most of the major elements of Japanese borrowing and the table below is of some assistance in indicating the general trends in Japanese borrowing. These data reveal that in the year ending March 1962, Japanese borrowing rose almost $800 million or from $1,9 to $2.7 billion. Major Elements of Japanese Borrowings in United States' Currency (End of quarter data in millions of U.S. dollars) Short-term 1. U.S. Bank Claims 2. Euro-dollar deposits Total 1959 "1950 TT 20U n.a. U97 uh 1,069 286 1,272 n.a. 1,288 n.a. i,a5 n.a. n«a„ 611 1,355 n.a. n.a. n.a. 1,981 266.0 265,8 28U.3 298.8 3Hi.3 172.2 159.5 183.5 183.0 190.7 183.0 186.9 207.1 208.8 222.7 512.3 597.7 632.3 658.0 693,1 7U5.8 n.a. 1,123.3 1,952.7 n.a. n.a. n.a. 2,726.8 Long-term 1. IBRDLoans (Disbursed portion) 135.it 230e 5 U.S. Ex-Im Bank 1/ (loans outstanding) 122.7. ,131.8 Private l$0o0£/ 150.0 Total GRAND TOTAL 1*08.1 1961 11 Ill I — T 7 1952 1,681 300 (est.) 1/ Includes short-term cotton credits. """ 2/ Volume of private long-term borrowing for March1959 estimated. Subsequent data based on table contained in "Summary of Foreign Capital Investment in Japan." NOT FOR PUBLICATION DECONTROLLED AFTER SIX MONTHS FOR PUBLICATION - 2 - The rather sharp expansion in short-term U.S. bank claims on Japan in 1960=61 represented primarily an increase in the volume of import acceptance creditso During"SL96l there was also a sizable increase in private long-term borrowing. (Details are provided on page 6 in a subsequent section entitled, ''Summary of Foreign Capital Investment in Japan.") Borrowing from the World Bank and the Export-Import Bank of Washington more than doubled between March 1959 and March 1962. Concerned about the rise in foreign borrowing, the Japanese government took five steps in April and May to discourage foreign borrowing. (See Capital Market Developments Abroad, June 1, 1962.) If the substantial improvement in the trade balance in the second quarter of 1962 continues, Japan should be able to reduce her dependence on foreign borrowing» Money Market „ Money market conditions continued to remain tight in May as commercial banks repurchased securities taken up earlier by the Bank of Japan. Contractionary developments included a ¥6U billion decrease in Bank of Japan loans and discounts, a ¥£9 billion Treasury surplus, and a ¥77 billion reduction in Bank of Japan bond holdings« Only partly offsetting these developments was a ¥U7 billion decrease in bank notes in circulation. As tight money market conditions continued in June, the volume of call loans outstanding in Tokyo hit an all-time high on June 7 of Ylt21 billion, compared .to the monthly average in May of ¥ 3 8 6 billion. On June 12, -the Bank of Japan informed the nine major city banks that the June increase in their loans outstanding should be held to ¥53 billion in contrast to the ¥75 billion desired by banks. Interest Rates. The average interest rate for bank loans and discounts rose only slightly in March to 8.216 per cent per annum from 8.213 per cent in February. The average interest rate thus remained relatively unchanged in the four months ending March 1962. As indicated in the table belows rates5 had risen substantially following increases in the Bank of Japan?s basic discount rate last July and September. Average Monthly Interest Rates on Bank Loans and Discounts March June September December 1959 I960 1961 1962 8.18 8.08 8.06 8.11 8.2] 8.22 8.Hi 8.08 7.92 7.88 8.00 8.20 8.22 Call loan rates have remained relatively stable since last January when the Government warned the financial community that they had become excessively high. In April and May, the unconditional call loan rate for Tokyo remained at 10.95 per cent per annum, as indicated in the table below. Rates did rise somewhat in March, however, as banks improved their cash position in preparation for the semi-annual public issue of their balance sheets. NOT FOR PUBLICATION NOT FOR PUBLICATION - 3 - Tokyo Call Loan Interest Rates (In per cent per annum) 1961 Unconditional iJ Over Month-end 8.76 10,92 13.87 April Septo Dec, 11.68 1/ 20.81 13.87 10.22 1962 Jan. Feb. Mar, Apr. May 13.lL 13.87 10.22 12.02 16.12 12,78 10.95 10.92 Loans callable at a day's notice. Bank Loans and Discounts. Bank credit in April rose 1.6 per cent compared to 0,0 per cent a year earlier. Most of this rise reflected increased holdings of securities as indicated in the table below. Loans outstanding declined seasonally, but the volume of bills discounted increased. Deposits dropped 1 per cent in April as contrasted with almost no decline a year earlier. Commercial Banks: Quarterly Changes in Deposits and Principal Assets (In billions of yen; Per cent Deposits Change Loans 1960 I II III IV +2U9 + 96 +206 +607 3.L 1.3 6.2 7.3 +176 +167 + 21ih +31*7 1961 I +202 Apr. - 3 +169 II in +329 +1*30 IV 2.7 lis 3.8 1.3 +326 - 21 +206 +216 +232 +128 -109 1.2 —1.0 1962 I Apr. +226 - 2 M A I N A S S E T S Per ' Per cent Bills cent Change Discounted Change Securities 3o8 3.2 U.9 6.7 2.9 -0,3 3-2 3.6 3.7 3,9 - + 21* + 87 +172 +182 Per cent Change 2.2 3.9 7.2 + 78 + 72 + 32 +127 6.2 2.8 2.6 9.1 1.8 • +103 7.2 + L8 + 68 +133 +206 +220 U.9 7.3 7.2 +10U + 1*3 +122 6.8 2.2 6.1* 2.2 6.9 + 11* + 31 o.U 0.9 - 61* +160 -3.1* 8.7 2.2 + 32 The proportion of bank loans and discounts extended for purchases of equipment rose to 17.1* per cent in April, compared to 17.2 and 17.3 per cent in February and March, respectively, NOT FOR PUBLICATION NOT FOR PUBLICATION Bond Market, New issues of debentures totaled only ¥86 billion in April following the seasonally high level of ¥129 billion in March, New issues of public corporate debentures were down to ¥17 billion in April from the ¥38 billion level in March» New issues of bank and industrial debentures were also lower in Aprile Average yields on government bonds and debentures were unchanged in April .from the March level, but yields on industrial debentures eased slightly in April. The Ministry of Finance has announced that during the June-September quarter this year it will purchase ¥30 billion in bonds, half from the city banks and half from government financial institutions, with the aim of easing somewhat^ the shortage of funds for smaller businesses. Stock Market o In May and June the stock market showed signs of reversing the general=downtrend that followed a peak for the year last February. Stocks declined 2,6 per cent between May 11 and May 30, but the May 30 low was above an earlier- low on April 250 The Dow Jones stock average rose slowly, but steadily^ in June, and on July 9 was 9°2 per cent above the May 30 low. In the next two days heavy liquidations contributed to a 1,3 per cent decline in the average0 Dow Jones Average of 225 Stocks Tokyo Stock Exchange 25 ¥1,312 2 9 1,367 i,m 1.136 16 23 30 1.L00 . 1,362 June July 6 13 20 27 ¥1,14-17 1,WS 1,L33 1,L30 U 11 1,L68 1961 1962 High Low ¥1,830 ¥1,250 High Low ¥1,590 ¥l,3lt2 1,U7U Foreign Trade. Japan's deficit on trade account, seasonally adjusted, narrowed substantially in May and June, as indicated in the table below. In the second quarter? the trade deficit, at a seasonally adjusted annual rate, was $0,7 billion "compared to $1,5 billion in the first quarter of 1962. If this favorable trend continues5 balance of payments equilibrium could be restored in the near future0 The seasonally adjusted trade figures (monthly or monthly averages on a customs basis in millions of dollars) in the table below are based on seasonal adjustment factors computed by the Bank of Japan under the Ij,S, census method. NOT FOR PUBLICATION NOT FOR PUBLICATION Exports Imports - 5 Trade Balance 1960 Year IV 338 355 37U 395 - 36 - Uo 1961 Year I II in IV 353 3U3 351 357 36U U8U U27 I6h 506 516 -131 - 8U -113 -lk9 -182 1962 i Jan. Feb. Mar, II Apr. May June 171 351 382 378 1;09 361 Lk7 120 L92 197 198 U81 1;66 182 177 139 -121 -113 -116 -103 - 57 -121 - 30 - 19 5 Exchange Reserves and Capital Flows. Japan's international reserves rose $27 million in May to $1,506 million0 The current account deficit, as measured on an exchange transactions basis, was $U5 million, about the same as in April. Net long-term capital receipts were $31 million, (largely reflecting the $17.5 million Japan Development Bank bond issue in May), up $2lt million from the April level; but net short-term capital receipts fell to $lili million from $67 million in April, The short-term receipts in May reflected a further drawing of $27 million on the $125 million credit from seven U.S. banks, and a further rise in Euro-dollar and free yen account liabilities. In June, Japanese reserves rose $37 million to $1,623 million, as $2U million was drawn on the $125 million credit mentioned above „ Of the $237 million rise in reserves during the first half of 1962, $205 million reflected drawings on the $200 million credit arranged with U.S. banks last November and the $125 million credit arranged last January, Total Japanese short-term liabilities to the United States as reported by U.S. banks, fell $17 million in April to $1,66U million. This constitutes a reversal of the general uptrend since last November as indicated in the following data on short-term claims on Japan reported by U.S. banks in millions of U.S. dollars: NOT FOR PUBLICATION NOT FOR PUBLICATION 168 175 20k 22U 2U2 260 Feb. ; or. June a/ 1961 1960 1959 362 875 952 372 U20 1,069 # 6 1,159 L88 1,196 L97 1,272 1962 1,511 a/1,598 a/l,68l a/l,66U 1959 I960 256 269 262 262 2# 32L 586 628 660 693 711 806 July Aug. Sept. Oct. Nov, Dec. 1961 l,3l»l 1,335 1,288 1,281 1,292 1,W5 Preliminary estimate. The Japanese have announced that the• M i n i s t r y of Finance is studying a revision of the minimum two-year waiting period required for remittance of capital by foreign investors in Japan. It is expected that the minimum period may be reduced in the near future to one year. Summary of Foreign Capital Investment in Japan. The rate of foreign capital investment in Japan rose sharply in fiscal 1961 (i.e. in the year endingfftarch 31, 1962) to a level of $576 million. This is considerably above the level in fiscal I960 of- $221 million and is equivalent to more than onethird of the total foreign capital investment in Japan since 1950. (See the table below on "Foreign Capital Investment in Japan.") Over two-thirds of this investment, both in fiscal 1961 and since 1950, has consisted of loans, primarily from U.S. banks and the World Bank, and of stock purchases. Only a small proportion of the total borrowing has resulted from foreign bond issues, though in fiscal 1961 the volume of foreign bond issues rose sharply. Foreign Capital Investment in Japan IIn millions of U.S. dollars) " Fiscal 1960 y 1, Loans a. I.B.R.D. b. Ex.-Jjru Bank of Washington c. Others , $136 kO U6 50 Fiscal 1961 1/ $387. 120 98 169 2/ Cumulative total since 1950 $1,2i;2 —TEE 27h U80 2. Stock Purchases a. Through the market b. Other 7h 72 52 116 35 60 2# " W 183 3. Foreign Bond Issues^/ 10 72 82 U. Purchases of Beneficiary Certificates & Debentures 1 1 3 $221 $576 $1,617 TOTAL (footnotes on page 9.) NOT FOR PUBLICATION NOT FOR PUBLICATION* — 7 - From 1950 through March 1962, the World Bank extended about hO per cent of the loans made to Japan, and U.S. banks, including the Export-Import Bank of Washington, extended about 50 per cent. A major portion of Japanese stock purchases has been direct investments in Japanese companies rather than purchases in the market. Of these direct investments, 80 per cent have been made in connection with technical-aid agreements« The volume of foreign loans extended to Japan in recent years has been sizable, even compared to some European countries. During the threeyear period 1958-60, foreign loans obtained by Japan came to $85U million, slightly more than Wiest Germany's $81|6 million and far more than Italy's $571 million. The first postwar placement of a Japanese bond issue overseas was in January 1959 when the central government floated a $30 million bond fssue in the United States. (See table below). Only $10 million of bond flotations were issued in fiscal I960, but in fiscal 1961 the total rose sharply to $72 million. The Japanese expect to continue to raise capital by foreign bond flotations, particularly since the World Bank indicated in 1961 that Japanese industry was now capable of obtaining adequate financing from non-World Bank Sources. Long-Term Foreign Investment in Japan j/ 1. Month Borrower 1959 —TOu Gov't of Japan 1961 Jan. From the United States: Amount in millions of U.S= dollars Purpose Comment $30 Bond issue to finance electric power development. Bonds guaranteed by Gov't of Japan. Kawasaki Steel $U Improvement and expansion of facilities. Bond issue privately placed. Jan. Sumitomo Metals $5- Improvement and expansion of facilities. Bond issue privately placed. Apr. National Telephone and Telegraph $20 Improve and extend telephone facilities. Governmentguaranteed bonds. June SONY $3.5 Development of plant and equipment for producing electric products. First stock issue in U.S. under American Depositary Receipts (ADR) System. NOT FOR PUBLICATION NOT FOR PUBLICATION Month Amount in millions of U.So dollars Borrower Oct. Japan Development Bank $20 Nov, Mitsubishi Chemical Siicii Tokyo Shibaura Electric Co, $9-3 Kawasaki Steamship Company $3.0 Mar, Nippon Light Metal Company $3 Apr. The Japan Fund, Inc. $l5»6 Apr. Nippon Gaishi Kaishi Ltde $3.0 Japan Development Bank $17.$ 1962 Feb. Feb. May - 8 Purpose Comment For loans to leading private electric power companieso Guaranteed external loan bonds o Improvement and expansion of •=> facilitiesc Bond issue privatelyplaced. Improvement and expansion of manufacturing facilitieso Second ADR issueo To finance about half the cost of a S3;000 ton tankero Borrowed via Manufacturers Hanover Trust Coo on 5-year term at 6 per cent interesto Improvement and expansion of facilitieso Finance new closed=end diversified investment company o ~ - 15 year 7*5 per cent bond issue placed privately through DillonReed Coo Issue of ls2505000 shares of common stock in American capital marketo Finance equipment, From National City Bank for one year at 5°5 per cent. For construction loans to leading private electric power companieso NOT FOR PUBLICATION Guaranteed external loan bonds, NOT FOR PUBLICATION 2. Month Feb. Borrower - 9 - From European Countriesg Amount in millions of U.S. dollars Bank of Tokyo $7.0 Osaka City and Prefecture *25 Purpose Comment Finance Swiss machinery imports and licensing agreement expenses e Two five-year credits from three Swiss banks at Sz to 5-3/h per cent interest. Reclamation and development of port facilities. Bond issue floated in German capital market. 1/ This list of foreign loans, bond and stock issues is intended to be complete, however, it is possible that some borrowing has not been included due to lack of information. Foreign Exchange. During May and the first half of June, the yendollar spot rate continued to remain at the official support level. The rate for the yen against the dollar in the forward market in May remained at a discount of 0.17 per cent per annum, but on June 5 strengthened to even par with the spot rate and remained at that level through mid-June. Customer's T. T. Exchange Rates of Bank of Tokyo in Tokyo Date Yen-dollar spot middle rate Three-month forward middle rate Forward discount in per cent per annum April 27 361.10 361.35 .28 May U 11 18 25 361.10 361.10 361.10 361,10 361.25 361.25 361.25 361.25 .17 .17 .17 .17 June 1 8 15 361.10 361.10 361.10 361.25 361.10 361.10 .17 (Footnotes to table on page 6.) ~~ "~ 1/ Japanese fiscal years 1960-61 and 1961-62^ended March 31, 1961 and March 31, 1962, respectively. 2/ Excludes $233 million in U.S. bank loans extended directly to Bank of Japan in fiscal 1961. 3/ Direct central government bond issues excluded. SOURCEs Japanese Ministry of Finance, NOT FOR PUBLICATION INTEREST A R B I T R A G E , U N I T E D S T A T E S / C A N A D A Thursday fig u r a i T H R E E - M O N T H T R E A S U R Y BILL RATES P»r t m t p«r annum U N I T E D STATES I I I I I I I I I I I 1 I I RATE D I F F E R E N T I A L A N D 1 I I I I I i 1 1 I I 1 I I I I 1 I I I 1 I I I I I 1 i l FORWARD C A N A D I A N DOLLAR F O R W A R D RATE RATE DIFFERENTIAL W I T H F O R W A R D E X C H A N G E COVER ! NET I N C E N T I V E I N F A V O R OF C A N A D A + ''chori 2 INTEREST A R B I T R A G E , N E W YORK/LONDON i Friday f P*r cent per 3 - M O N T H TREASURY BILL RATES ^-*1 I . i EURO DOllAB EATE-10N90N RATE D I F F E R E N T I A L A N D - 3 - M O N T H FORWARD STERLING -ivxrFOBWABDBATI RATE D I F F E R E N T I A L W I T H FORWARD EXCHANGE COVER INTEREST A R B I T R A G E F C £ g - S S M A N C O M M E R C I A L B A N K S Friday figure: Pi 3 - M O N T H TREASURY Bl L I S , I N T E R B A N K L E N D I N G RATE A N D . E U R O - D O L L A R D E P O S I T RATES GERMAN TREASURY l l l l S ^ RATE D I F F E R E N T I A L A N D F O R W A R D DEUTSCHE MARK I forward rati TREASURY » I U S j J 1 J 1 RATE D I F F E R E I4 T I A L W ITH F O R W A R D E X C H A N G E C O V E I R MKT m r s i m vt» "I ! 1— IN F A V O R 0 F R A H K F U R * 1 + 1 Cum L _ ; : | N 1 1 $ "mo" j Not*: 1 1 nr 1 r A V - y—' 1 " X , 1 I IIEASURY I I I 1 1 m 1 1 s $ 1961 Special forward role available to German commercial banks. o i 1 M i i J 1»6J i i $ i D INTEREST A R B I T R A G E , F R A N K F U R T / L O N D O N 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 UNITED K I N G D O M \ A GERMAN INTERBANK RATE D I F F E R E N T I A L A N D J - 3 - M O N T H F O R W A R D STERLING SPREAD I N FAVOR OF UNITED K I N G D O M B I l l S OVER; GERMAN TREASURY BILLS 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 COVER N E T ' I N C E N T I V E * OF U N I T E D K I N G D O M OVER: Zv l l S H O R T - T E R M I N T E R E S T R£ TE3 * ^ \ tU»0-D0LLA» - lOHKHfJ .U J i SWITZERLAND ,^ 3-month treoiury bill role* (or all countries except Japan ()-m6nth interbank deport rat*) and Switzerland (3-monlh deposit rata) f ] ^"J 3-month rate (or U. S. dollar deposits in London. L O N G - T E R M B O N D YIELDS 1961 INDUSTRIAL STOCK INDICES SPOT EXCHANGE RATES SWISS - U.K. - MAJOR CURRENCIES AGAINST U.S. DOLLAR FRANC GERMAN MARK, 7Z7ZZ STERLING Above par FRENCH FRANC DUTCH GUILDER B E L G I A N FRANC Abq»> par 1 ITALIAN LIRA CANADIAN DOLLAR JAPANESE YEN ^ChoM. 9 3 - M O N T H F O R W A R D E X C H A N G E RATES A G A I N S T U. S. D O L L A R S ! (AGAINST P O U N D STERLING - L O N D O N geimamjuii A G A I N S T P O U N D StERL N G - L O N D O N HI6UM DISCOUNT: HANC I
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