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D i v : ION O F I N T E R N A T I O N A L F I N A N C E BOARD OF G O V E R N O R * OF THE F E D E R A L RESERVE SYSTEM "to.3 6Jj" June 1, 1962 urwW m* S \ r £ C A \ >1TAL MARKET DEVELOPMENTS ABROAD Ot hi-..'.---',D I . 1 Japan Nine Charts on F i n a n c i a l Markets Abroad I. Japan: Money and C a p i t a l Markets i n A p r i l Japanese r e s i d e n t s i n r e c e n t months continued to borrow s u b s t a n t i a l amounts from t h e United S t a t e s „ Borrowings from tLS„ banks i n c r e a s e d $83 m i l l i o n i n March and a d d i t i o n a l loans were r e p o r t e d t o have been obtained i n A p r i l . From a l l s o u r c e s , a n e t s h o r t - t e r m c a p i t a l inflow i n t o Japan of $20 m i l l i o n i n March and $67 m i l l i o n i n A p r i l i s shown by Japanese s t a t i s t i c s on f o r e i g n exchange t r a n s a c t i o n s . In t h e l o n g e r - t e r m f i e l d , two Japanese s e c u r i t y i s s u e s a g g r e g a t i n g $33 m i l l i o n were o f f e r e d i n t h e U.S. c a p i t a l market i n A p r i l and May, To r e s t r a i n Japanese domestic c r e d i t expansion and borrowings abroad, t h e M i n i s t r y of Finance announced i n A p r i l and May s e v e r a l measures b a s i c a l l y designed t o achieve t h e s e aims» These included a requirement t h a t Japanese exchange banks hold a 20 per cent r e s e r v e i n f o r e i g n exchange a g a i n s t a l l t h e i r s h o r t - t e r m f o r e i g n l i a b i l i t i e s except acceptance c r e d i t s „ These are probably i n excess of $f?00 m i l l i o n . The banks have a l s o been r e q u i r e d t o l i m i t t h e i r g u a r a n t e e s on f o r e i g n borrowings t o t h e c u r r e n t amounts o u t s t a n d i n g . These r e s t r a i n t s have been n e c e s s i t a t e d by t h e high volume of f o r e i g n borrowings, often at high i n t e r e s t r a t e s s f o r domestic f i n a n c i n g which has u n d e r c u t , t o some e x t e n t , t h e t i g h t money p o l i c y being pursued i n Japan 0 Japanese money markets continued t o remain t i g h t i n April as commercial banks repurchased some of t h e s e c u r i t i e s t a k e n up by t h e Bank of Japan i n February, The February purchases by t h e Bank were aimed a t o f f s e t t i n g t h e adverse impact on f i n a n c i a l l i q u i d i t y caused by l a r g e t r e a s u r y cash r e c e i p t s t h a t month„ The Japanese s t o c k market continued t o ease off s i n c e t h e February high and between May 26 and May 31, d e c l i n e d 2„6 per c e n t s l a r g e l y r e f l e c t i n g t h e c u r r e n t s h a r p d e c l i n e s i n t h e U0S0 stock market 0 Money Market, Money market c o n d i t i o n s remained r e l a t i v e l y t i g h t i n A p r i l as banks repurchased s e c u r i t i e s taken up by t h e Bank of Japan i n February C o n t r a c t i o n a r y developments i n c l u d e d an ¥11 b i l l i o n drop i n Bank of Japan l o a n s and d i s c o u n t s , an ¥11 b i l l i o n expansion i n bank n o t e s in c i r c u l a t i o n 3 and a ¥28^ b i l l i o n d e c l i n e i n Bank of Japan bond h o l d i n g s l a r g e l y r e f l e c t i n g commercial bank r e p u r c h a s e s . Only p a r t l y o f f s e t t i n g t h e s e developments was a n e t t r e a s u r y outpayment i n A p r i l of ¥183 b i l l i o n . NOT FOR PUBLICATION DECONTROLLED AFTER SIX MONTHS NOT- FOR PUBLICATION - 2 I n t e r e s t Rates„ The average i n t e r e s t r a t e f o r bank l o a n s and d i s c o u n t s r o s e only s l i g h t l y from 8 c '209 per cent i n January t o 8c 213 i n February. As i n d i c a t e d i n t h e t a b l e b e l o w , • t h e r a t e has been r e l a t i v e l y s t a b l e s i n c e December 1961 f o l l o w i n g a r i s e from t h e low of 7o88 p e r c e n t i n June 1961. Average Monthly I n t e r e s t Rates on Bank Loans and Discounts March June September December 1959 I960 1961 1962 8.18 8.08 8.06 8*11 8.21 8.22 8.1k 8.08 7.92 7.88 80 00 8.20 8 0 21 i / 1 / February. Bank Loans and Discounts 0 Bank c r e d i t i n t h e f i r s t q u a r t e r ' of 1962 r o s e I08 p e r cent compared t o L.9 p e r cent a year e a r l i e r 0 As i n d i c a t e d i n t h e t a b l e below s the r i s e i n loans and b i l l s discounted was l e s s t h a n a y e a r e a r l i e r 5 and s e c u r i t y holdings dropped ¥61t b i l l i o n i n t h e f i r s t q u a r t e r compared t o a r i s e of ¥103 b i l l i o n a year ago. Deposits also i n c r e a s e d more slowly i n t h e f i r s t q u a r t e r than a year e a r l i e r 5 .rising 1 0 2 p e r cent compared t o 5»7 p e r cent i n t h e ^ f i r s t q u a r t e r of 1961 c Commercial Banks? Q u a r t e r l y Changes i n Deposits and P r i n c i p a l Assets (In b i l l i o n s of yen) MAIN ASSETS Per Per Per PercentBills cent centDeposits change Loans change Discounted change S e c u r i t i e s change 1959 1 II . Ill • IV +201 - 22 +276 +472 3.1 -0.3 3.6 2.0 3.2 ho 7' + 21 + 86 +Hi9 +169 ho9 6.8 +313 + 83 +136 +207 1960 1 II III IV +2L9 + 96 +506 +607 3.U 1.3 6.5 7.3 +176 +167 +2W1 +3U7 3.8 3.5 L.9 6.7 + 5u + 87 +172 +185 1961 I II III . IV +502 +169 +359 +L30 5.7 1.8 3.8 Uo3 +326 +#6 +216 +232 5.9 3.5 3.6 "3.7 1962 I +128 1.2 C56 3.9 51 62 58 66 5.2 6.1 5.3 5.8 2.5 3.9 7.5 7.5 + 78 > 75 + 35 +127 6.5 5.8 2.6 9.1 + L8 +133 +206 +220 I08 U.9 7,3 7.2 +103 +10U + L3 +122 6.8 -6.L 2.5 6.9 + 1L OoU •= 6u NOT FOR PUBLICATION 1.2 8.1 8.5 + + * + -3.U - NOT FOR PUBLICATION - 3 - The p r o p o r t i o n of bank loans and d i s c o u n t s extended f o r purchases of equipment rose t o 17.3 p e r c e n t i n March, s l i g h t l y h i g h e r t h a n t h e l e v e l during t h e p r e v i o u s f i v e months except f o r a s e a s o n a l dip i n December. Bond Market, New i s s u e s ' of p u b l i c c o r p o r a t e bonds were s e a s o n a l l y l a r g e i n March, t h e l a s t month of t h e f i s c a l y e a r , t o t a l l i n g ¥38 b i l l i o n , o r almost double t h e February l e v e l of ¥20 b i l l i o n e New i s s u e s of bank debentures were also up s h a r p l y i n March t o ¥77 b i l l i o n , compared to a range of ¥62 - ¥66 b i l l i o n monthly s i n c e l a s t September. I n d u s t r i a l debenture i s s u e s were about t h e same i n March as i n February„ The volume of t o t a l new i s s u e s i n March was ¥129 b i l l i o n , up s h a r p l y from t h e l e v e l i n p r e v i o u s months, but not as h i g h as t h e ¥175 b i l l i o n volume i n March 1961 when t h e r e were except i o n a l l y l a r g e i s s u e s of i n d u s t r i a l d e b e n t u r e s . Average y i e l d s on government bonds and debentures i n March were unchanged, but y i e l d s on p r i v a t e i n d u s t r i a l debentures r o s e s l i g h t l y . On A p r i l 25 a ¥2 b i l l i o n ($5<>55 m i l l i o n ) , 7 per c e n t i s s u e of Japanese Air Line bonds was marketed. The bonds were s o l d only i n Japan and are guaranteed by t h e government. Proceeds w i l l be used to f i n a n c e t h e purchase of new j e t a i r c r a f t and t o repay a long-term loan from t h e U.S. Export-Import Bank. Stock Market. Stocks have g e n e r a l l y been e a s i n g o f f f o l l o w i n g a high f o r the y e a r i n February. Stocks were o f f i n t h e f i r s t week of A p r i l but r e c o v e r e d somewhat by mid-month. A subsequent e a s i n g through A p r i l 25, when t h e average was a t ¥1,31*2, was followed by a r e c o v e r y t o ¥1,1*1*5 on May 11. During t h e r e s t of May, t h e average d e c l i n e d and between May 26 and May 31, t h e market dropped 2 . 6 p e r c e n t , r e f l e c t i n g p r i m a r i l y t h e sharp d e c l i n e s i n t h e U.S. stock market. D e t a i l s on t h e averages a r e provided i n the t a b l e below. Dow Jones Average of 225 Stocks Tokyo Stock Exchange March 28 A p r i l 1* 11 18 25 / ¥1,1*77 1,1*17 May 2 9 =¥1,367 l a l*ll* 1961 High Low ¥1,830 ¥1,250 1,360 1,3U2 23 30 1S1*00 1,362 1962 High Low ¥1,590 ¥1,31*2 1,1*20 16 1,1*36 D e s p i t e t h e g e n e r a l downtrend i n t h e Japanese market, U.S. i n v e s t o r s purchased a l l of t h e 1,250 9 000 s h a r e s of a new investment company, The Japan Fund I n c . , o f f e r e d i n New York on A p r i l 12. NOT FOR PUBLICATION - NOT FOR PUBLICATION F o r e i g n Trade and C a p i t a l Flows 0 J a p a n 3 s commodity t r a d e p o s i t i o n worsened i n A p r i l a s s e a s o n a l l y a d j u s t e d e x p o r t s f e l l and i m p o r t s r o s e i n r e l a t i o n t o t h e March l e v e l s o The t r a d e d e f i c i t r o s e from $89 m i l l i o n i n March t o $130 m i l l i o n i n A p r i l 0 Recent s e a s o n a l l y a d j u s t e d t r a d e f i g u r e s (monthly or monthly a v e r a g e s on a customs b a s i s i n m i l l i o n s of d o l l a r s ) a r e s Exports Imports Trade Balance = 38 - U2 I960 Year IV 337 353 375 395 1961 Tear I II XII IV 353 3U6 350 355 360 L86 L20 466 5vi 54? October November December 1962 J a n u a r y ' February March April 7k -116 -156 -187 356 3-6 356 567 516 -209 -211 356 389 361 358 U94 U8l L.70 a86 -136 - 92 ^ 89 -130 3Ll; . -133 •- J a p a n ' s i n t e r n a t i o n a l r e s e r v e s f e l l $2 m i l l i o n i n A p r i l t o $1,559 m i l l i o n * The d e f i c i t on c u r r e n t a c c o u n t 5 a s measured on an exchange t r a n s a c t i o n s b a s i s 9 rose from $20 m i l l i o n i n March t o $Ut m i l l i o n i n A p r i l , Short-term c a p i t a l r e c e i p t s a t $67 m i l l i o n i n A p r i l were up c o n s i d e r a b l y from t h e l e v e l s i n F e b r u a r y and March when t h e y were $1+8 and $20 m i l l ! o n 0 r e s p e c t i v e l y * P a r t of t h e s h o r t - t e r m i n f l o w r e f l e c t e d a f u r t h e r drawing of $20 m i l l i o n on t h e $125 m i l l i o n c r e d i t a r r a n g e d w i t h U*S„ banks i n January 0 Through A p r i l , $53 m i l l i o n of t h i s c r e d i t had been drawn„ Net l o n g - t e r m c a p i t a l r e c e i p t s were $7 m i l l i o n i n A p r i l , down from t h e $35 m i l l i o n l e v e l i n Marcho The o v e r - a l l b a l a n c e of payments r e g i s t e r e d a t f e f i c i t of $2 m i l l i o n i n A p r i l i n c l u d i n g u n e x p l a i n e d outpayments of $32 m i l l i o n 0 T o t a l J a p a n e s e shorn, term l i a b i l i t i e s t o t h e United S t a t e s as r e p o r t e d by U„3. banks r o s e $83 m i l l i o n i n March t o a p r e l i m i n a r y level,..of $ 1 , 6 8 1 m i l l i o n 0 Japanese borrowing from t h e U°S0 i n t h e f o u r months ending March 1962 r o s e $389 m i l l i o n , a s t h e f o l l o w i n g s t a t i s t i c s of s h o r t - t e r m c l a i m s on Japan r e p o r t e d by banks i n t h e United S t a t e s ( i n m i l l i o n s of U.S. d o l l a r s ) shows NOT FOR PUBLICATION NOT FOR PUBLICATION 1959 Jan. Feb. Mar. Apr. May June • I960 168 175 . 20U 22U 2I4.2 260 1961 875 362 372 952 i;20 1,069 1,1# 156 U88 " 1,196 1,272 k97 1962 1,511 a/1,598 a/1.681 1959, July Aug. Sept-o Oct 6 Nov. Dec . 256 269 262 262 275 32U I960 1961 586 .l,3!tl 628 . 1,335 660 1,288 1,281 693 1,292 711 806 1,1(1(5 a / Preliminary estimate. The American c a p i t a l market absorbed two Japanese s e c u r i t y f l o t a t i o n s i n A p r i l and May. On A p r i l 11 s American i n v e s t o r s purchased t h e e n t i r e 1,250,000 shares of t h e Japan Fund I n c . o f f e r e d a t $12.£0 a share f o r a t o t a l s a l e s value of $15=6 m i l l i o n . On May V~>s t h e Japan Development Bank s u c c e s s f u l l y f l o a t e d a $17.5 m i l l i o n i s s u e tif 1 5 - y e a r s 6 per cent guaranteed e x t e r n a l loan bonds a t a p r i c e of $96 per s h a r e t o y i e l d 6.U1 per c e n t . I n A p r i l and May t h e government- took f i v e steps, t o discourage domestic c r e d i t expansion and f o r e i g n borrowings. B r i e f i y 0 s t a t e d , t h e s e i n c l u d e the f o l l o w i n g requirementss ( l ) t h a t Japanese f o r e i g n exchange banks, i n e f f e c t , d e s i s t from making loans t o a Japanese r e s i d e n t , or from allowing him t o withdraw a compensating b a l a n c e , a g a i n s t a nonr e s i d e n t f r e e yen b a l a n c e j (2) t h a t f o r e i g n exchange banks and f o u r l a r g e s e c u r i t y companies give p r i o r n o t i c e t o t h e government b e f o r e u n d e r t a k i n g n e g o t i a t i o n s on medium- and long-term borrowing from f o r e i g n l e n d e r s j (3) t h a t exchange banks m a i n t a i n a 20 per cent r e s e r v e behind s h o r t - t e r m f o r e i g n l i a b i l i t i e s excluding acceptance c r e d i t s j (It) t h a t exchange banks l i m i t t h e i r guarantees on f o r e i g n debts t o t h e c u r r e n t amounts o u t s t a n d i n g ) and (5) t h a t overseas s u b s i d i a r i e s of Japanese t r a d i n g f i r m s submit r e g u l a r r e p o r t s t o t h e government on t h e i r borrowing o p e r a t i o n s . Foreign Exchange. Exchange r a t e s remained r e l a t i v e l y unchanged during A p r i l and t h e f i r s t h a l f of May. During t h e l a s t t h r e e t r a d i n g days of A p r i l , t h e r a t e f o r t h e yen a g a i n s t t h e d o l l a r i n t h e forward market weakened s l i g h t l y , t h e forward discount r i s i n g from .17 t o <,28 per cent per annum5 - but i n May5 t h e forward r a t e r e t u r n e d t o i t s . p r e v i o u s l e v e l . The yen d o l l a r spot r a t e remained at t h e o f f i c i a l support l e v e l during A p r i l and t h e f i r s t h a l f of May. Customer 3 s T.T* Exchange Rates of Bank of Tokyo i n Tokyo Forward d i s c o u n t i n Three-month T e n - d o l l a r spot per cent per annum Forward middle r a t e middle r a t e Date l.tiU March 30 361.25 359.60 April 6 361.25 361.10 .17 .17 361,25 361.10 13 20 •17 361,25 361.10 .28 361.10 27 361.35 0.1,7 May U 361.25 361.10 .17 361.25 11 361.10 .17 361.25 361.10 1$ NOT FOR PUBLICATION INTEREST Thursday ARBITRAGE, THREE-MOKTH RATE UNITED S T A T E S / C A N AFT A figures TREASURY DIFFERENTIAL A N D BILL RATES F O R W A R D C A N A D I A N DOLLAR 1 - - * \ - SPREAD V f IN X 1 FAVOR OF CANADA + i ' - w,,vA- 1 / 1 VI 1 ; w 1 - h I n RATE i ;< 1 ^ \ , F O R W A R D RATE Discount — | i a V O -V - t 1 1 DIFFERENTIAL i i WITH i i 1 1 i F O R W A R D i l 1 i i EXCHANGE NET I N C E N T I V E IN F A V O R i i i i i i. COVER OF C A N A D A + . LJ L i L L I . J . M 1 1 i r 1 1 INTEREST ARBITRAGE, NEW ! ! , 1 3 - M O N T H TREASURY I RATE 1 — J i DIFFERENTIAL "3-MONTH — J" 1 BILL R A T E S 1 AND FORWARD J Y O R K / L O N D O N r r j STERLING — I — ! -r- RATE DIFFERENTIAL FORWARD WITH EXCHANGE L L LLL COVER) j INTEREST ARBITRAGE 3-MONTH - FOR TREASURY EURO-DOLLAR GERMAN BILLS, DEPOSIT COMMERCIAL INTERBANK BANKS LENDING RATES RATE 1 OVERMAN INTERBANK 10AN RATE EURO-DOUAR LONDON RATE DIFFERENTIAL AND FORWARD DEUTSCHE MARK / ' , r v - - v RATE DIFFERENTIAL _NET INCENTIVE: — Speciol forward i WITH FORWARD EXCHANGE- COVER l^lVvOROFFRANKfUrf (+T AND^ 0 \ . I N T E R S r ARBITRAGE, FRANKFURT / LONDOM ~ 3 - MON TH TREASURY BILLS AND INTERBANK I- LENDING 1 RATES I \ A GERMAN INTERBANK n RATE D I F F E R E N T I A L A N D | - 3 - M O N T H FORWARD STERLING '\ . .... , RATF. D I F F E R E N T I A L NET 1 WITH | I N C E N T I V E ' OE UNITED K I N G D O M 1 FORWARD OVEk. I EXCHANGE ! 1 COVER ; yv SHORT-Y JRM INTEREST RATES * tbtO-DOUAt "A • lOMPOH. — V \ 1958 l \ CANADA iiti •Xr, 3 month treasury bill rales lor all countries except Jopon (3 month interbank deposit role) ond • Switzerland (3-month deposit rale)., "j" 3 month rate' lor U. S dollar deposits in London w LONG-TERM • B O N D YIELDS \ - GERMANY & V j V - 4 A J - I t i i I I i i I I I I I 1 1 1 1 M 1 1 1 1 1 1 1 I I 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 I I U L U ~ INDUSTRIAL STOCK INDICES* X Japon: Index ot all Uocki Iroded on Tokyo e x c h a n g e . \ SPOT EXCHANGE RATES - \ f SWISS FRANC MAJOR CURRENCIES AGAINST U.S. DOLLAR \ I 3-MONTH FORWARD AGAINST U. S. AGAINST POUND EXCHANGE RATES DOLLARS STERLING - LONDON U.S. DOLLAR AGAIN St POUND STERL NG FRENCH - LONDON FRANC / »
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