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Div*ipMjBiww*mmMA 110MAL MwW ^in^mck ONjBf«w**mw* IIOMAL w . ! i- " v j H.13 ! I - •oawo of eovenNons u Mo. l^FEO!.. ° July 31, 1961 COITAL MARKET DEVELOPMENTS ABROAD I. JapanII. Nine Charts on Financial Markets Abroad I. Japan: Money and Capital Markets During June On July 22 the Bank of Japan raised its basic discount rate from 6.570 to 6.935 per cent per annum, thus restoring the rate to the level existing prior to January 26. This action was taken primarily to arrest the deterioration in the balance of payments, which has been evident for several months, and to curb the heavy capital investment in plant and equipment which reportedly has been running about UO per cent above levels a year earlier. Commercial bank lending rates were increased in correspondence with the increase in the discount rate* Earlier in July banks and insurance companies agreed to a government request to reduce by 10 per cent during the current fiscal year proposed capital investment loans to major industries, The deterioration in the balance of payments has been caused by rapidly rising imports, a leveling off in exports in the first half of the year, and a tapering off in the inflow of foreign capital. In the first half of the year the current account deficit was $5>82 million compared to $79 million in the same period last year. On June 27 the government eased the restrictions on non-residents desiring to purchase various types of government bonds, notes and bank debentures. Previously foreigners were unable to invest in many of these securities. This step represents a further liberalization of J'apan's overseas capital transactions. Money Market. Several factors contributing to tighter money market conditions in June led the Bank of Japan to expand its loans and discounts to a new all-time high. A seasonal treasury surplus withdrew ¥ 78 billion from circulation and the balance of payments deficit an additional ¥ 18 billion. Bank liquidity was reduced as note issue increased significantly by ¥ 91 billion reflecting mid-year bonus payments by business firms. Offsetting these tightening factors was a ¥ 193 billion increase in Bank of Japan loans and discounts. At the end of June, the Bank's loans and discounts totaled ¥ 788 billion, a new all-time high. Conditions are expected to ease somewhat in July, usually a month of net treasury outpayments to the public. Bond Market. New issues of industrial debentures in April and May totaled ¥ 22 and ¥ 26 billion, respectively, compared to average monthly, issues of ¥ 77 billion in the first quarter and ¥ 18 billion in the fourth NOT FOR PUBLICATION DECONTROLLED AFTER SIX MONTH'S - 2 - quarter of I960. Issues of bank debentures in May were ¥ 50 billion, the same as in April, and down about ¥ 7 billion from the first quarter average, New issues of public corporation debentures were ¥ 15 billion in May, up ¥ 1* billion from the April level. Sales of open-end bond investment trusts are reported to have eased.since the reduction in debenture interest rates in April. Internet Rater. In the week following the increase in the B m k of Japan -discounterste on July 22, commercial banks raised their prime lending rates, thus reversing for the time being the government's drive to reduce the structure of interest rates which began last January* Bank deposit rates are not expected to change. In line with the increase in the basic discount rate, which is partly aimed at reducing the balance of payments deficits, the discount rate on export bills was lowered:on July 22 from 1**75 to 1**38 per cent in order to stimulate Japan's generally stagnant exports. The average interest rate for all commercial banks on loans and discounts fell slightly in April to 7.91 per cent, thus continuing the decline which began last August, Average Monthly Interest Rate on Bank Loans and Discounts March June September December 1958 1959 1960 ~ 1961 8.63 8.61 8,1*1 8.27 8,18 8.08 8,06 8.11 8.21 8.22 8.1k 8.08 7,92 7.91 1/ April 1961. Bank Loans and Discounts. Bank credit expanded at a faster rate in April and May than a year earlier. Expansion of loans and bills discounted in the past year, as indicated below, has been at about the same rate as deposit expansion. The proportion of loans for the purpose of financing investment in capital equipment was about the same in April and May as earlier in the year, following a dip in March. Commercial Banks; Change in Deposits and Principal Assets (In billions of yen) ' ~ » Deposits Main Assets Loans Bills Discounted Securities Total 195? to 1956 TnS % lCT May -1959" to to % 1960 1959 T O +1,113 isrr +571 15.9 + 676 16.2 +270 17,3 + 1*31 23.5 +205 23.9 + 271 25.5 "1737B Tim TW NOT FOR PUBLICATION +718 25.0 +156 11,1 +170 2l*,7 1960 to % 1961 +1,71*6 ^223 +1,105 22,8 + 521* 23.1 + 361 27.0 -1^90 NOT FOR PUBLICATION - 3 Stock Market. Stock prices continued to move up in June and July, but dropped 2.5 per cent on July 21 in connection with the Bank of Japan increase in its basic discount rate. Thereafter some of the lost ground was recovered but by July 26 the average had slipped back to the July 21 level. After falling in the last half of May, the market began to rise on June 8, the day after the highly successful issue of 2 million shares of the Sony Corporation in New York under the American Depository Receipts system. On July 12 the Dow Jones average passed the ¥ 1,800 mark, a new postwar high and reached its latest peak of ¥ 1,830 million July 18. Dow Jones Average of 225 Stocks Tokyo Stock Exchange May 31 June 7 11 21 28 ¥ 1,679 1,580 1,619 1,677 1,735 July 5 12 19 26 ¥ 1,778 1,806 1,801 1,77U 1 I960 High ¥1,357 Low ¥ 869 1961 High ¥1,830 Low ¥ 1,367 Foreign Exchange. The substantial deficits in the balance of payments in June and July contributed to a continued weakening of the yen in the forward exchange market. During June and the first half of July the forward discount of the yen against the dollar increased steadily, rising from 0,89 per cent per annum early in Juite to l.W* per cent by mid-July, Throughout this period the spot selling rate of dollars for yen remained at the extreme official limit. Customer's T, T. Exchange Rates of Bank of Tokyo in Tokyo Yen-dollar spot middle rate 3-month forward middle rate June 2 9 16 23 30 361.10 361.10 361.10 361.10 361.10 361.90 361.90 361.95 362.10 362.10 O.89 0.89 0.9k 1.11 1.11 July 7 lit 361.10 361.10 362.20 362.10 1.22 I.I4I4 Date - Far Eastern Section. NOT FOR PUBLICATION Forward discount in per cent per annum NOT FOR PUBLICATION II. Nine Charts on Financial Markets Abroad Chart Chart Chart Chart Chart Chart Chart Chart 1 - Interest Arbitrage U0S0/Canada 2 - Interest Arbitrage New York/London 3 - Interest Arbitrage New York/Frankfurt i. - Interest Arbitrage Frankfurt/London 5 - Short-term Bond Yields 6 - Long-term Bond Yields 7 - Industrial Stock Indices 8 - Major Currencies in Terms of Spot United States Dollar Chart 9 - 3-month Forward Rate—London Quotations NOT FOR PUBLICATION $ Chart 1 INTEREST ARBITRAGE, UNITED S T A T E S / C A N A D A Thursday figure* T H R E E - M O N T H TREASURY B i l l RATES CANADA RATE DIFFERENTIAL W I T H FORWARD EXCHANGE COVER Mil INCENTIVE IN IAVOI Of CANADA+ m i "list S m s 1**0 s » # J lttf s INTEREST A R B I T R A G E , N E W Y O R K / LONDON Friday figures 1 3 — M<3 N T H T REASU (Y BILL RATES 1 IN - r\r/ " i ^ \ ' V L - V NEW YORK -X V ^ - i 1 1 i 1 l i i 1 1 1 1 1 1 RATE t D I F F E R E N T I A L A N D 3 - M O N T H FORWARD STERLING . ' -I I - RATE D I F F E R E N T I A L W I T H FORWARD E X C H A N G E COVER IN FAVOR Of NEW YORK 1 1 1 1 1 I 1 1 1 1 «... 3 ' A INTEREST A R B I T R A G E , N E W Y O R K / f R A N K F U R T . Fridoy figure! 3 - M O N T H TREASURY BILL RATES A N D G E R M A N 3 - M O N TH I N T E R B A N K L O A N RATES P«r ( m l par a n n u m i GERMAN 3-MONTH I N T E R B A N K L O A N RATE L/"V RATE D I F F E R E N T I A L A N D F O R W A R D D E U T S C H E M A R K \ INTERBANK \ L O A N RATE — v . F O R W A R D RATE D I S C O U N T ( - ) 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 IN FAVOR s\ ¥: OF F R A N K F U R T M > » J "to $ ft <+) AA M J i Ml Mole: ' Special forward dollar rale (.either Hal or premium on tpol) available to German commercial bonki. $ B 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 K l TREASURY B I U S — A N D L E N D I N G RATES — GERMAN f RATE D I F F E R E N T I A L A N D | TREASURY 11 US FORWARD STERLING /V-'- PREMIUM+ OR DISCOUNT- 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 INCENTIVE OF UNITED KINGDOM BIUS OVER: •\A J— GEREAILlJUiRIANK V IAIN 1AT1 M IL J S H O R T - T E R M INTEREST RATES * X , V , H U4i r M f 1 \ l 1 i GERMANY V 1I I I 1 I I 1 i I I — — — A JAPAN A N •/ \ r - A />% V l'" V^ 1 ' l _.l—1—J—1—1—1—1— *___ Not*: / Wfl/v- / f \yji 1 , L_ J ; 3-month Ireotury bill r c l t i lor oil counlriet except Jopon (3-month ijiterbonlc deposit role) and Switzerland (3 month depoiit rale). — fa J 1 1 - p (ANA DA ~ ' 1 7 \ ^ L O N G - T E R M BOND YIELDS i I N D U S T R I A L STOCK I N D I C E S * SWITZERLAND J 100 CANADA i SO Nole: Japan: Inde* of oil i l c c k i traded on Tokyo exchange. M A J O R CURRENCIES^ I N TERMS OF THE SPOT U. S. DOLLAR -;-v- Above poi 3 - M O N T H FORWARD RATES - L O N D O N QUOTATIONS / r - _P*r c>nl p«r 1 (fGERMAN MARK PREMIUM + FRENCH FRANC / S M $ D
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