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V 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 e O V E R N O R S H. 13 No. 155 . 1964.- , CAPffAL M A R K E L D E V E L O P M E N T S ABROAD I. II. I. Japan Nine Charts on Financial Markets Abroad Japan: Money and Capital Markets in May-June ..Lvpan continued to borrow heavily in June, but there are signs of reduced borrowing in the U.S. Japan placed two bond issues in Europe in June, one for $50 million in Germany and another for $15 million in London and Luxembourg. U.S. bankreported claims on Japan fell $1 million in April, indicating a sharply decreasing level of borrowing since January. (See Table 1). Table 1. Japan; Short- and Long-term Borrowings ,in the U.S. (in millions of U.S. dollars) Change during year 1960 1961 1962 1963 I Change during period 1963 . 1964 Jan. Feb. Mar. II III IV -T/ 480 Long-term claims — 1 Total 483 722 212 727 -J! 263 397 169 566 11 2 13 118 -35 153 - 7 30 23 287 102 389 74 32 106 93 122/ 105^/ 2/ Securities — Total 58 785 J41 404 200 766 51 64 .84 237 _60 83 5 394 0 106 Tols/ 1/ _2/ a/ _30 513 s > Apr. -8^/ 4L TL2/ Bank-reported liabilities to the U.S. New security flotations. Preliminary. There were clear signs during May and June that the recent tight money policy was continuing to restore balance-of-payments equilibrium. The seasonally adjusted trade deficit in April-May was down to a monthly average of $132 million compared to $168 million in the first quarter. International reserves rose $7 million in June to $1,937 million, the first rise since the general decline began last October except for a slight rise in March. The June increase, however, was accounted for mainly by the receipts from the twg^European bond issues mentioned above. With exports moving up rapidly and the rise in imports slackening, Japan's general reserve decline may be reversed during the second half of this year, provided the large capital inflow continues. On the domestic side, money and capital markets continued relatively tight and interest rates increased. Bank lending rates advanced in March, reversing the general downtrend since September 1962, and call loan rates continued their uptrend through June. Stock prices increased in May and June, and reached a new high for the year on July 3. OFFICIAL USE ONLY (Decontrolled after 6 months) orric.'-A: v s e on-l t- Money market. The money market remained relatively tight in May in spite of a moderately expansionary impact from monetary developments. The net expansionary impact in May from a ¥ 5 2 billion reduction in bank notes in circulation and an increase of ¥ 2 billion in Bank of Japan credit was only partly offset by the contractionary effect of net Treasury receipts of ¥36 billion. In June, the money market tightened further. Interest rates. Call loan rates increased steadily in May and June reflecting the continued tightness in the money market. The rate for unconditional (repayable at a day's notice) call loan money increased from 9.125 per cent in early May to 10,585 per cent on the first of June, remaining at that level through June 26. The rate for over-night call loan money (for settlement on the following day) changed by the same jd.egree during this period. Over-month-end call loan money (repayable at a day's notice in the following -month) was 11.680 per cent in May and j-mped to 12.775 per cent on June 1, where it remained through June 26. The average interest rate for bank loans and discounts rose from a low of 7-67 per cent in February to 7.73 per cent in M a r c h , reversing the steady decline in interest rates since September of 1962. This developr. :-nt reflects the tight money policy first introduced in December 1963 .and reinforced in March 1964 w i t h an increase in the Bank of Japan's basic discount rate. Preliminary reports indicate that the average interest rate rose further in April. Table 2. (in per cent per annum) March June September December 1959 1960 1961 1962 1963 1964 8.18 8.28 8.06 8.11 8.21 8.22 8.14 8.08 7.92 7.88 8.00 8.20 8.22 8.23 8.24 8.09 7.92 7.75 7.68 7.67 7.73 On June 24, Japan increased the suggested maximum interest rates payable on Euro-dollar deposits by Japanese foreign exchange banks in order to lesrsen the loss of Euro-dollars in connection with'window-dressing operations by European banks at the end of June„ Rates for one-month and three-month deposits were increased from 4 - 1 / 4 to 4 - 1 / 2 per cent, and from 4 - 3 / 8 to 4 - 5 / 8 per cent, respectively. Bank loans and discounts. Bank credit increased 1.5 per cent in April, a higher rate than the 0.9 per cent rise a year earlier. Since late last year, however, bank credit had been expanding at a slower rate than a year earlier. The reversal of this trend in April is likely to b e temporary, since the April 1963 rate of expansion was abnormally low. Loans increased 1.6 per cent in April compared to 0.7 per cent a year earlier, and holdings of securities rose 10.6 per cent against 7.5 per cent a year ago. . Bills discounted w e r e unchanged in April. Deposit liabilities fell 2.6 per cent in A p r i l , compared to a 1.6 per cent decline a year earlier. The proportion of bank loans and discounts extended for purchases of equipment rose from 16.9 per cent in March to 17.1 per cent in April. This is the highest level since November of 1962 and is w e l l above the cyclical low of 16.3 per cent in March 1963. for FRASER OFFICIAL USE ONLY Digitized :A_.5E0W:v -3- Bond market. After a sharp rise in March, new issues of bonds returned to more normal levels in April„ The total volume of issues, was ¥132 billion compared to ¥175 billion in March. New issues of public corporation bonds declined from ¥65 billion in March to ¥29 billion in April. New issues of bank debentures were relatively unchanged at ¥80 billion and new issues of industrial debentures fell from ¥30 billion in March to ¥25 billion in April. Average yields in April on local government securities, public corporation bonds., and one-year bank debentures remained the same as in earlier months and in 1963 at 7.354. 7.053 and 6.224 per cent, respectively. Yields on long-term bank debentures were slightly lower in April at 7.283 per cent, and yields on new issues of industrial bonds fell from 7.498 per cent in March to 7.483 per cent in April. Stock market. Following a low for the year on April 9, the stock market trended up in May and June, A new high for the year was reached on July 3, 14 per cent above the April 9 level. The recent rally has been attributed primarily to the improved balance-of-payments position. Table 3. April 27 May Dow Jones Average of 225 Stocks, First Section of Tokyo Exchange June ¥1 ;,217 1 8 15 22 29 July 6 1 ;,246 1.,268 1:,304 1..318 4 11 18 25 : ¥i,,319 L ,299 1.,345 1 ;,316 1.,348 1.,363 1963 High Low ¥1 .634 ¥1,,201 1964 High Low ¥1 :,369 ¥1.,203 Foreign trade. The seasonally adjusted trade deficit tended to narrow during the first quarter but widened moderately.in April and May. (See Table 4). Imports in May were down 1 per cent from the April level, but exports fell 3 per cent. The progress made in narrowing the deficit since January is likely to continue in coming months with basic equilibrium possibly being restored later in the year„ The trade figures (monthly, or monthly averages on a customs basis) in Table 4 are based on seasonal adjustment factors computed by the Board of Governors of the Federal Reserve System. Table 4, 1 Imports Exports Balance 494 382 Japan: II 1962 III IV 468 409 452 426 464 414 -112 - 59 - 26 - 50 Seasonally Adjusted Foreign Trade (in millions of U.S. dollars) I 488 422 II 1963 III IV 545 443 582 461 643 484 - 66 -102 -121 -159 I 659 491 . 1964 Jan. Feb. Mar. Apr. 689 464 659 491 628 517 669 542 May 662 526 -168.-225 -168 -111 -127 -136 - 4 - OFFICIAL USE ONLY Foreign reserves and capital flows. International reserves fell $45 m i l l i o n in May and, in view of Japan's trade position, would presumably have fallen in .June. In f a c t ^ J a p a n ' s potential reserve loss was offset by receipts from a $50 million bond issue in Germany, and holdings rose by $7 million in June to a level of $1,937 million. The net decline in reserves for the first However, the trade deficit has been narrowing, half of 1964 was $121 million. and further losses in reserves in the coming months will probably be relatively moderate. The current account deficit in the balance of payments as measured on an exchange transactions basis widened from $76 million in April to $102 m i l l i o n in May. This reflected mainly an increase in net payments for services which increased from $26 million in April to $49 m i l l i o n in May. The trade deficit was up only moderately from $50 million to $53 million. Net long-term capital receipts in May w e r e $21 m i l l i o n and net short-term capital receipts w e r e $26 million, compared to ,$35 and $74 million, respectively in April. Since reserves fell $45 million in May," while recorded net payments w e r e $55 million, errors and omissions totalled $10 million. According to preliminary data, Japanese short-term liabilities to the U.S. as reported by U.S. banks fell $8 m i l l i o n in April to $2,368 million. This represents the first decline since August of 1963 and probably reflects in part the leveling off in Japanese imports in recent months. (See Table 5), Table 5. 1959 1960 1961 1962 1963 196( Short-term Claims on Jap an Reported by U.S. Banks (in millions of U.S. dollars) Jan. Feb. Mar. Apr. 168 175 372 952 565 1,691 2,316 204 420 1,069 1,778 224 250 1,159 1,775 1,876 2,368^' 875 1,601 1,697 2,223 l$U> - M ^ 242 488 1,196 1,762 1,896 260 467 1,272 1,758 1,869 July Aug. 256 586 1,341 1,765 1,872 269 628 1,335 1,767 1,793 Sept. 262 660 1,288 1,711 1 *6.: Oct. Nov. Dec. 262 693 1,231 1,710 1,876 275 711 1,292 1,662 1,995 324 806 1,528 1,740 2,149 NOTE: a/ Data for 1962 and 1963 have been revised and include $52 million reported by banks initially as of December 31, 1961. Preliminary. Japan placed two bond issues in Europe totaling $65 million in June. These consisted of a $15 m i l l i o n , 1 l - y e a r , 6 - 1 / 2 per cent convertible bond issue by Toyo Rayon Company in L o n d o n and Luxembourg, and a $50 million, 15-year, 6 per cent bond issue in Germany. In July, the Hitachi Company is expected to float a $15 million, 15-year, 6 - 1 / 2 per cent bond issue in London„ OFFICIAL- USE ONLY 0TS1C.AL Tab1e 6„ Japan: USE ONLY -5- Long-term Borrowings in Europe Reported in Financial Press-^^ Amount Month Floated Terms Capital Markets Bank of Japan $ 7.0 m. Jan. 1962 Two 5-year credits from 3 Swiss banks at 5-1/2 - 5 - 3 / 4 per cent in Sw francs. Switz. Osaka City and Prefecture $25.0 m. Feb. 1962 6-1/2%, DM bond issue. Germany Osaka City and Prefecture $25.0 m. Mar. 1963 6-1/2%, DM bond issue. Germany L 5 mill. ($14.5 m.) Aug. 1963 6%, U.S. dollar, 20-25 years, conversion of 1899 bond issue. U.K. Takeda Chemical Co,$15.0 m. Dec. 1963 6%, U.S. dollar, 20 year, convertible debentures. Luxembourg Canon Camera Co. Dec. 1963 6-1/4%, U.S. dollar, 15 year. convertible debentures. U.K. Gov't, of Japan $ 5.0 m„ Osaka City and Prefecture $25.0 m. Jan. 1964 6-1/2%, DM, 15 yr. bond issue. Germany Gov't, of Japan $11.5 m. Feb. 1964 5.5%, Sw francs, 10-15 years. Switz. Teijin Ltd. $10.0 m. Mar. 1964 6-1/4%, U.S. dollar, 20 year, convertible debentures. Luxembourg C, Itoh & Co. $12.5 m. Mar. 1964 6-1/4%, U.S. dollar, 20 year convertible debentures. London Taisho Marine & Fire Ins„ Co. $ 4.4 m. Mar. 1964 Equity issue (London Depositary Receipts), 20 mil. shares at $0.22 per share. London Metropolis of Tokyo $22.5 m. Apr. 1964 5-3/4%, U.S. dollar, 15 year guaranteed dollar bonds. Europe Toyo Rayon Co. $15.0 m. June 1964 6-1/4%, U.S. dollar, 15 year convertible debentures. London &, Luxembourg $50.0 m. (200 DM) June 1964 6%, 15 year, DM bond issue. Germany Gov't, of Japan a/ Although this list is believed to be complete, some issues may have been omitted. OFFICIAL USE ONLY g."i::al jss only — T h e q u e s t i o n b e f o r e J a p a n in the second h a l f of 1964 is h o w m u c h she w i l l h a v e to b o r r o w to f i n a n c e the p a y m e n t s d e f i c i t , and h o w m u c h c a n be b o r r o w e d long-term. A s s u m i n g a c o n t i n u a t i o n of r e c e n t trade t r e n d s , the trade d e f i c i t m a y be cut as'much as 5 0 per cent in the second h a l f , or to an annual r a t e o f around $1.2 b i l l i o n . If net i n v i s i b l e e a r n i n g s w e r e m a i n t a i n e d at levels prevailing in earlier y e a r s - - a r o u n d $600 m i l l i o n - - a c a p i t a l inflow of a b o u t $ 6 0 0 m i l l i o n at an annual r a t e w o u l d b e r e q u i r e d , or $ 3 0 0 m i l l i o n just for the second half. H o w e v e r , net i n v i s i b l e s in the first h a l f of 1964 appear to h a v e b e e n r u n n i n g s u b s t a n t i a l l y b e l o w the normal rate. If this trend c o n t i n u e s , it appears that Japan w i l l h a v e to b o r r o w c o n s i d e r a b l y m o r e than $ 3 0 0 m i l l i o n in the next six m o n t h s to p r e v e n t a further d e c l i n e in r e s e r v e s . European bankers have informed the J a p a n e s e M i n i s t r y of F i n a n c e that the E u r o p e a n c a p i t a l m a r k e t can absorb about $ 1 7 0 m i l l i o n in J a p a n e s e i s s u e s this year. Since Japan borrowed $ 1 3 0 m i l l i o n in E u r o p e a n l o n g - t e r m m a r k e t s d u r i n g the first h a l f of this y e a r , and has not floated any l o n g - t e r m issues in the U n i t e d States since last O c t o b e r , it would appear that J a p a n m a y h a v e to r e l y r a t h e r h e a v i l y on a d d i t i o n a l s h o r t - t e r m b o r r o w i n g if c u r r e n t r e s e r v e levels are to b e m a i n t a i n e d . Foreign exchange. T h e y e n r e m a i n e d w e a k in b o t h the spot and forward m a r k e t s during M a y and the f i r s t h a l f of J u n e , f l u c t u a t i n g in a v e r y n a r r o w range. (See. T a b l e 7). T h i s w e a k n e s s r e f l e c t e d the s t r o n g d e m a n d for f o r e i g n e x c h a n g e as the c u r r e n t a c c o u n t c o n t i n u e d in d e f i c i t . T a b l e 7, Japan: C u s t o m e r ' s T.T. E x c h a n g e R a t e of B a n k of T o k y o , in T o k y o Yen-dollar spot m i d d l e rate Three-month forward m i d d l e rate Forward discount in per c e n t per annum April 24 . 362 .25 362.43 .20 May 1 8 15 22 29 362 .30 362 .30 332 .35 362 . 35 362 .35 362.43 362.40 362.40 362.40 362.40 .14 .11 .06 .06 .06 June 5 12 15 362 .30 362 .30 # 2 .35 362.40 362.40 362.40 .11 .11 .06 ^ L a t e in June there w a s a h e a v y w i t h d r a w a l of E u r o - d o l l a r s as E u r o p e a n "banks engaged in w i n d o w - d r e s s i n g o p e r a t i o n s , and the B a n k at J a p a n r e p o r t e d l y sold $30 m i l l i o n in order to support the r a t e . M o s t of these E u r o - d o l l a r d e p o s i t s are expected to r e t u r n to J a p a n l a t e r , h o w e v e r , in the m o n t h of July. - i .• a'ri: --.r.c' America Section, OFFICIAL USE O N L Y .£h = rt 1 I N T E R N A T I O N A L M O N E Y M A R K E T Y I E L D S FOR U . S . D O L L A R I N V E S T O R S ! 3 - M O N T H E U R O - D O L L A R D E P O S I T V S . C E R T I F I C A T E OF D E P O S I T Wednesday figures Per cent p e r a n n u m , YIELDS D I F F E R E N T I A L : EURO D O L L A R O V E R U . S . C E R T I F I C A T E OF D E P O S I T N E W YORK OFFER RATES O N SELECTED 3 - M O N T H I N V E S T M E N T S ftlda i figure* TREASURY BILLS- F u l l y H e d g e d , i : ! i ~ COMMERCIAL PAPER-Fully H e d g e d U.K. HIRE PURCHASE I //Vk i x CANADIAN FINANCE COMPANY U.S. FINANCE COMPANY INTEREST A R B I T R A G E , U N I T E D STATES / Thursday CANADA (i @ 3 - M O N T H TREASURY BILL RATES RATE D I F F E R E N T I A L A N D F O R W A R D C A N A D I A N D O L L A R + J I 1 L . . -L— T" I | 1 I J 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 + • ®\ NIT INCENTIVE IN F A V O I OF CANADA I I M I I I i 1 M I J $ 0 1961 M + I I i I I i 1 i I 1 I 1 I I i 1 i I K H . J 1962 $ 0 M J __ 1963 S 0 I i i I i I I I M _J_ 1964 $ 0 aaaaw: «& rn w *e g INTEREST A R B ! T R A C E , N E W Y O R K / L O N D O N 3 - M O N T H TREASURY BILL RATES U . K . j O U l AUTHOIITY PifOSITS RATE D I F F E R E N T I A L A N D 3 - M O N T H F O R W A R D STERLING " SM1A0 IN M V O I Of 10*DON RATE DIFFERENTIAL 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 F i V O I OF HIW Y O i l J 1961 1**2 If43 $ J 19*4 s » I N T E R E S T A R B I T R A G E FOR G E R M A N C O M M E R C I A L B A N K S 3 - M O N T H TREASURY B I L L S , I N T E R B A N K L E N D I N G RATE A N D 7 T U R O T D O L T A R D E P O S I T RATES EURO-DOLLAR LONDON 1 / GERMAN TREASURY I I L I S " i i i i i ^ T — i 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 r I 1 J I i I I 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 Of f R A N K f U R T < + ) NET INCENTIVE: f~\js V / X M ^ I S H O R T - T E R M INTEREST RATES * lUIO-DOllAI -lONDON —e— -- 1 f \ . i » h / T j k ^ vW' iwimeuiiie -x!A> I i i i i i ii ii i i i i i i 1i1 1i 1 i1.1 1 1 1 1 1 1960 1941 1941 3 monlh Ireoiury bill roi»i (or oil c ou nlrie» • enepi Japan land Swilierlond (3 monlh depoiil role), . m m •j-;3 monih role lor U 5 dollar depo.il, in London^ I I i I I M 1943 i i 1I 1i 1 1 1 1 1 1 1944 (Average role on bonk loam ondT diicouniiTl L O N G - T E R M B O N D YIELDS SWITZERLAND 1961 1962 I N D U S T R I A L STOCK I N D I C E S ,958=100. » o t i o 11 o I « V' 1962 * 'New series. Swiss Bank Corporation mdusiriol stocj index /jopan- indei of 2 2 5 industrial and other slacks traded on the Tokyo eichangt S P O T E X C H A N G E RATES - M A J O R CURRENCIES_AGAINST U.S. DOLLAR SWISS FRANC GERMAN MARK N Y / V// - A U . K . STERLING B e l o w par 1964 3 - M O N T H F O R W A R D E X C H A N G E RATE __ F riday t i 9 u r e t A G A I N S T U.S. D O L L A R S Per c«nl per onnvm! DISCOUNT— i Z T T T 1 A G A I N S T P O U N D STERLING - L O N D O N A G A I N S T P O U N D STERLING - L O N D O N I l l G I A N FRANC FRINCH FRANC DISCOUNT 1962 1963
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