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DIVISION OF INTERNATIONAL FINANCE
BOARD OF GOVERNOR#
FEDERAL RESERVE SYSTEM
H. 13
No. 108
JUN 1 0 1963
June 5, 1963o
FEDERAL RESERVE I
DEVELOPMENTS ABROAD
OF RICHMOW
I.
II.
HI.
I.
Japan
India
Nine Charts on Financial Markets Abroad
Japan:
Money and Capital Markets in April
Japan issued $17 million in securities in the U.S. market in April consisting of two A.D.R. (American Depository Receipts) issues for $7 million and a
6-3/8 per cent convertible debenture issue for $10 million. Early in May the
Japanese Government also placed a Sj per cent, 17 year bond for $27. S million in
the U.S. market. During the balance of the year, the government -is expected to
place three more issues in the U.S. totaling $70 million, and private Japanese
companies are planning on floating an additional $75 million. The current status
of Japanese borrowings is indicated below.
Table 1.
Japan:
Short- and Long-term Borrowings in the United States
~
(in millions, of U.S. dollars)
~
Change during year
1960
1961
I55T
I
Bank loans 1/
Securities
182
—22
512
Change during quarter
• — 1 9 s r
~~
II
IV
III
722
J®
205
IB
2U9
23
-20
_36
780
3h6
272
16
-L7
•J*
8
23
27
1963
I
- 29 3/
5LT
22
1/ Short-term liabilities to U.S. banks.
"2/ New security flotations.
3/ Preliminary.
Interest rates continued to ease in April. On April 20, the Bank of Japan
cut its basic discount rate from 6.20£ to 5.8U per cent, the fourth reduction since
the tight money policy was first eased on October 27, 1962. Other reductions occurred last November and in March of this year.
Bank credit in March again rose at a more rapid rate than a year earlier,
continuing a trend evident since last November. The stock market reached a high
for the year on April 5, eased off through mid-April, and then moved in a narrow
range through June 3«
OFFICIAL USE ONLY
(Decontrol after six months)
OFFICIAL USE ONLY
- 2
Exports3 seasonally adjusted, picked up in April, but imports rose even
faster, producing the largest deficit in a year. Reserves continued to rise moderately in April and May as net capital receipts more than offset deficits on current
accountc Early in April regulations were relaxed cn the remittance of foreign investment in Japanese stocks and various invisible transactions: The authorities
also widened the exchange margin for the spot yen to 3 Ai of 1 per cent of tne par
value, compared with the former 1/2 of 1 per cent marginBecause of the reduction by 1.U6 percentage points in the Bank of Japan's
basic discount rate since last Octobers commercial banks have been under pressure
to reduce their interest rates on deposits t The Ministry of Finance has reportedly
dissuaded the banks from requesting such a cut by promising to permit the establishment of approximately 100 new branch banks in the coming ten months,,
Money marketc Despite a net contractionary impact from monetary developments , money market conditions remained easy in Aoril, Following the cut in the
Bank of Japan's basic discount rate on April 20, call loan rates dropped 0,-3^5
percentage points, but firmed during the last four days of the month: The expansionary
effect of net Treasury outpayments of x2h0 billion in April wr-? more than offset by a_
reduction in Bank of Japan loans and discount? of t"120 billion and of government
securities of ¥202 billion,, and a ill? billion increase in bank notes in circulation.
Interest rates,
The reduction in the Bank of Japan's basic discount rate
on April 20 from
205 to £i6-U per cent was reflected immediately in a decline in
call money rates, The unconditional call loan rate (fund 1s repayable j.t a day 's
notice) dropped from 7=3 per cent on April 20, a Saturday, to 6,935 pei cent on
April 22. Turing the lent-four days of April the rate returned to its earlier level
of 7c3 per cent.
The average interest rate on ban'- loans and discounts continued to decline
through February :
(Sec Table 7 below)
Th:.s reflects the easier credit conditions
since last October when Japan s tight >icney policy was relaxedc With farther cuts
in the Tank of Japan'js basic discount rate in "'arch and A p u i average interest rates
are likely to register further declinesc
^able 2.
Japan:
::arch
June
September
December
1/
Average "onthly Interest Rates on Bank Leans and Disccan'.b
1959
1960
1961
1962
1963
8 18
6=28
8,06
8/11
6:21
8,22
8:1U
8.05
7r92
7-88
8,00
6/20
8,22
8,2j
8^2a
8 = 09
7^96
February
OFFICIAL USE ONLY
- 3 -
Em\Ly-~tn May the Ministry of Finance reduced the interest yield on shortterm government securities from 6.02 to 5.66 per cento This step was taken in order
to avoid leaving the rate on these securities higher then the Bank of Japan's basic
discount rate of f>.8U per cent.
Bank loans and discounts. Since November of 1962 bank credit has been
expanding at a faster rate than a year earlier and this trend continued through
March. In that month, total bank credit rose 2.9 per cent compared to 1.0 per cent
a year earlier„ There were increases in all categories of credit as loans rose 2.9
per--cent-(against 1.5 per cent a year earlier), bills discounted rose U.3 per cent
(against 1.6 per cent a year earlier) and security holdings rose 0.6 per cent (in
contrast to a decline of 2.1 per cent a year earlier). Bank deposits rose a
whopping ¥1,032 billion or by 8.It per cent in March in contrast to a lu5 per cent
rise a year earlier. This sharp increase in deposits was one factor contributing
to the easier money market conditions in March.
The Bank of Japan announced in May that it would discontinue the "window
guidance" offered to city banks during most of the past ten years. In effect, this
policy constituted a form of credit rationing to those city banks seeking accommodation at the Bank of Japan. Reliance for credit and monetary control will now be
placed largerly on discount rate policy and the expanded program for purchase and
sale of securities introduced last November.
The proportion of bank loans and discounts extended for purchases of
equipment was 16.3 per cent in March. This is the lowest level since a peak of 17.L
per cent was reached last October.
Bond market. New issues of bonds and debentures totaled ¥138 billion in
March, ¥9 billion higher than a year earlier and considerably higher than the ¥LlU
billion average for January and February. New issues of public corporate debentures
totaled ¥U5 billion in March against a monthly range of ¥22-25 billion since last
September. New issues of bank debentures rose ¥ii billion in March to a level of
¥7U billion, but new issues of industrial debentures fell ¥3 billion to a level of
¥19T)lHion.
Average yields on industrial bonds rose from 7.U85 per cent in February
to 7.U95 per cent in March. Yields on government securities dropped from 6.Ui8
to 6.H32 per cent over the same period.
Stock market. The stock market reached a high for the year on April 5,
15 per -cent-above the level at the end of 1962, but 11 per cent below the postwar
high on July 18, 1961. After easing through-mid-April, stock prices moved in a
relatively narrow range through June 3= (See Table h below)„
OFFICIAL USE ONLY
0::'':in:AL US]: Qili.Y
Table U.
- % -
Dow Jones Average of 225 Stocks, First Section of Tokyo Stock Exchange
April
1
8
15
22
-38-
May . 6
13
20
27
n>62h
1,630
1,602
1,575
1,593
June
3
51,595
1,598
1,550
1,556
1962
High
Low
51,590
¥1,216
1963
High
Low
Tl,63l
?1,391
. 1,551
Foreign trade. Although exports, seasonally adjusted, rose substantially
in April, there was an even sharper rise in imports; as a result, the seasonallyadjusted trade deficit was the largest since April, 1962, (See Table 5) => Exports
rose 11 per cent between March and April and imports increased 15 per cent. The
seasonally-adjusted trade deficit at an annual rate in the February-April period
was $1,156 million, compared to $156 million in the third quarter of last year and
$6U8 million in the fourth quarter. Since Japan can normally expect to cover with
invisible earnings a trade deficit of about $600 million a year, the current rate
of deficit is clearly unsustainable. The seasonally-adjusted trade figures (monthly,
or monthly averages, on a customs basis) in Table 5 are based on seasonal adjustment
factors computed by the Bank of Japan under the U.S. census method =
Table 5.
Japan; Seasonally Adjusted Foreign Trade
(in millions of dollars)
1962
Imports
Exports
Trade balance
I
If
ill
k92
371
I166
U09
-121
-57
1963
Feb.
Mar„
Apr/
h 87
L98
hlh
573
ii6l
-8h
-112
!:V
1
hh7
h3h
L75
121
h06
U09
395
-13
-5U
-81
-65
-92
1,86
hlh
Effective April 1, 1963, 25 more import items were liberalized, bringing
Japan's rate of liberalization to 89 per cent in relation to the 1959 base year =
This reduces the number of nonliberalized items to 229= The rate of liberalization,
is somewhat slower than- that planned earlier, largely because a projected freeing
of.sugar imports has been postponed.
Exchange reserves and capital flows„ Japanese international reserves rose
$15 million in April and a further $16 million in May to $1,89U million.
This brings
the total gain since the first of the year to $53 million„
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- 5
The balance of payments, as measured on an exchange transaction basis, registered a deficit of $69 million on current account in April 0 With net short-term
capital receipts of $66 million, net long-term capital receipts of $19 million, and
a net outflow of $1 million under the errors and omissions item, the overall balance
registered a gain of $15 million» Since the beginning of the year the current account has been in deficit, but; except for February, net receipts on capital account
have more than offset the deficit,
On April 1, Japan abolished the six-month waiting period required for
foreign investors to repatriate capital invested in Japanese stocks„ Controls continue in effect, howevbr, on foreign investment in fixed interest bearing bonds and
in investment trusts. Certain other invisible transactions relating to shipping,
freight insurance, and foreign movie royalty payments were also liberalized on
April 1.
Japanese short-term liabilities to U.S. banks rose $62 million in March,
according to preliminary reports = (See Table 6), Except for a brief rise last
December, this represents the first substantial increase in these liabilities since
a peak was reached in March 1962.
Mar.
Apr c
May
June
July
168
201*
175
1,20
362
372
1,J69
875
952
1,601
1,685
1,777
1,693 a/ 1,682 a/ l,7Uli
22U
250
1,159
1,773
2k2
1,88
1,196
1,761
260
L97
1,272
1,757
256
586
i,3ia
Jan.
1959
1960
1961
1962
1963
a/
Short-term Claims by U.S. Banks on Japan
(in millions of U.S. dollars)
Feb.
II
Table 6.
Sept,
Oct.
269
628
1,335
1,766
262
660
1,288
1,710
262
693
1,281
1,709
Nov.
Dec*
275
32U
711
806
1,292 1,528
1,660 1,773
Preliminary.
In April the Japanese successfully floated $17 million in new security issues
in the United States, Sony Corporation placed $5o2 million in A„DcR 0 (American Depository Receipts) shares and Mitsui and Co. $1„8 million in A e D 0 R . shares. Mitsui
and Co, also placed $10 million in 15-year 6-3/8's per cent convertible debentures.
During the first quarter of the year, Japan floeted $51 million in security issues in
the United States.
On May 1 the Government of Japan successfully floated in the U.S. :$27*5
million in 17-year, 5i per cent sinking fund bonds „ The bonds reached the market at
a price of 97.75 to yield 5.71 per cent. The funds will be advanced by the Government
to the Japan Development Bank for loans to private electric power companies.
OFFICIAL USE ONLY
-
OFFICIAL U3K ONLY
6
-
Foreign exchange, After refining unchanged at the official support level
during the first quarter, the exchange rate in the spot market weakened in April and
the first half of May. From 358=90 yen to the dollar on March 30, the spot middle
rate depreciated to 362,25 yen to the dollar on May 15. (See Table 7)» ^he interbank middle rate on-May 15 was 362 0 UU yen to the dollar, only 0,25 basis points below
the new official ceiling rate of 362=70 yen to the dollar. On April 22 the Ministry
of Finance established new exchange rate margins between the yen and the dollar under
which spot exchange transactions will be allowed to fluctuate within 3/U r s of 1 per
cent above and below parity in contrast to the earlier limits of 1/2 of 1 per cent
of parity.
The yen continued to weaken in the forward market in April and the first
half of May, the 3-month forward middle rate depreciating from 360,95 to 362„60 yen
to the dollar e Since this rate of depreciation was less rapid than in the spot
market, the forward discount ngrrowed from 2,3h per cent on April 1 to zero on
April 17. After April 20, however, a forward discount ranging from 0,17 to 0„72
per cent reappeared as the forward rate depreciated more than the spot rate, The depreciation in both the spot and forward markets probably is a reflection of the worsening deficit on trade account.
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
March 29
358.90
360.95
2.28
April
5
12
19
26
359.80
359,70
361.10
361.55
361.05
361.05
361,10
361,90
1.39
1«50
0.00
,39
May
2
10
15
361.L0
361.90
362.25
361.90
362.25
362.60
.55
,39
.39
OFFICIAL USE UNLY
Forward Discount
(in per cent per annum)
- 7 -
OFFICIAL USE ONLY
II.
India t Money and Capital Markets During April 1963
Money market conditions eased in April reflecting in part a seasonal rise
in bank deposits, but call loan rates continued above year earlier levels. Bank credit
rose only slightly as a substantial part of the gain in deposits was reflected in a
rebuilding of scheduled bank holdings of government securities. Gold prices moved
np in late April and the first ten days of May, reversing an earlier downtrend. The
absence of regular gold price quotations for April 26 and May 3a however, suggested
some continuation of the market disruption that occurred during the first quarter
following the implementation of new restraints on gold trading and manufacture.
Stock prices turned up moderately in April, indicating a possible reversal of the
previous downtrend, and international reserves fell slightly following a substantial
rise in February and March.
Money market. Day-to-day call money rates reached a peak in mid-March and
declined sharply in April. (See Table 1). A primary factor in the April decline was
the substantial rise in the aggregate deposits of the scheduled banks. . As indicated
in Table U, these deposits rose Rp. 106 million in March and Rp. U89 million in April,
in contrast with a decline of Rp. 26 million in February. Call money rates in the
February-April period this year continued to remain about 1 percentage point above
year-earlier levels. This reflects in part measures taken by the monetary authorities
during the last half of 1962 to limit commercial bank borrowing from the Reserve Bank
and to increase its cost.
Table 1.
India g Inter-bank Call Money Rate in Bombay
(in per cent per annum)
Monthly average:
1962
Feb.
Mar.
Apr.
ho62
5.05
h.19
1963
6.02
6.18
6.28
April
Feb.
Mar.
Apr.
5.8U
6.20
5.oi
Selected dates - 1963:
15
22
29
a/
6.27
6.26
Average of Fridays.
OFFICIAL USE ONLY
5
12
19
26
6.09
5.5U
1.38
U.03
OFFICIAL USE ONLY
---Gold market. After reaching a low for the year at the end of March,
quoted gold prices rose in April and the first part of May, (See Table 2). The
recent rise represents the reversal of a downtrend in prices since the peak of last
August« Late in April and early May market quotations were not available, suggesting
•:a recurrance of the market disruption that occurred earlier in January and February.
AAtithat time the Government announced new regulations which placed certain restraints
von- the trading and manufacturing of "^old. One result was a suspension of the regular
gold price- quotations from mid-January to mid-March. Between April 19 and May 10 the
Bombay spot gold price rose 9 per cent or from $69.73 to $76.3k per fine ounce.
Table 2.
India: Price of Gold Bullion~"iti Bombay
(in dollars per fine ounce) a/
~
Monthly average:
1962
Feb.
Mar,
Apr.
78.71
79.W
78.77
Feb.
Mar. b/
Apr. F/
1963
66*62
65.10
67.67
Selected dates - 1963:
March
8
15
22
29
Not quoted
Not quoted
66 = lt6
6U.3h
April
May
a/
To/
19
6L.53
68.72
69.73
10
76.3k
5
12
Average spot quotations, converted into dollars at par value.
Average of Fridays where•quotes available.
Stock market.
After declining during the past year* stock prices turned
up moderately in April, rising U per cent. (See Table 3)« It is not yet clear
whether this upturn represents a reversal of the previous downtrend. Factors con-'
tributing to the previous decline included tighter credit conditions during the last
half of 1962 and the prospect of increased business taxes for the fiscal year beginning April 1. The Government has raised business tax rates but by amounts less
than those originally announced.
OFFICIAL USE ONLY
Table .3
India:
Price Index of Variable Dividend Industrial Securities
(1952-53 = 100)
Monthly average:
1962
„
Feb, "
Mar.
Apr.
190.3
192.2
192.6
1963
Feb.
Mar,
Apr.
169.3
April
166.6
16U.U
• 162.3
a/
a/
Selected dates - 1963:
March
2
9
16U.6
16
a/
159.9
1 59.9
163.0
166.3
20
161.9/
162.8
23
30
6
13
27
160,3
Provisional.
Banking developments. Although bank depos-its rose 2.It per cent in April,
the same rate as a year earlier, bank credit increased only 0.1 per cent in contrast
to l.U per cent a year earlier. Holdings of government securities, however, rose by
Rp. 215 million or 3»6 per cent in April, indicating that banks have begun to rebuild
their government securities' portfolio after having liquidated Rp. 521 million in
securities in February-March during the busy season. (See Table U). Cash and balances
with the Reserve Bank rose 1,8 per cent in April compared to 6.2 per cent a year earlier.
Table U.
India:
Monthly Changes in Deposits and Principal Assets of Scheduled Banks
M A I N
A
S
S
E
T
S
Per cent Bank Per cent
Gov't. . Per cent Cash and Balance Per cent
Deposits Change Credit Change Securities
Change with Reserve Bank Change
1962
Apr.
+I46I
+2.U
+203
+1.U
8
-0.1
1963
Feb.
Mar.
Apr.
- 26
' +106
+189
-0.1
+0.5
+2.1
+5U0
+5l5
+ 16
+3.7
+3.k
+0.1
-332
-189
+21$
-5.1
-3.1
+3.6
OFFICIAL USE ONLY
r 77
+6,2
h
-0.3
+l<rl
,
+
lit
+ 22
+1.8
OFFICIAL USE OMLY
10
On April 29, total bank credit was equivalent to 76.21 per cent of aggregate
deposits compared to 77=96 per cent on March 29, A year earlier on April 27, 1962,
the credit-to-deposit ratio was 72=75 per cento The scheduled banks' cash and balances
with the Reserve Bank were 6=13 per cent of aggregate deposits on April 26, down from
6,51 per cent at the end of 1962 and 6.68 per cent a year earlier on April 27, 1962,
Exchange reserves„ India's international reserves fell slightly in April
from $U92 to $107 million, (See Table 5=) This represented a reversal of the previous trend when reserves rose $hh million to a level of $1*92 in the February-March
period, Since the spring of 1962 reserves had remained relatively stable at record
low levels«
Table
India: International Monetary Reserves of the Reserve Bank
(in millions of dollars - last Friday of month)
~
Month:
1962
Feb,
%ar,
Apr.
533
$20
W3
1963
hl5
April
Febo
Mar.
Apr.
U72
h92
U87
Selected dates - 1963:
March
15
22
29
L83
li91
19L
192
26
May
Asia, Africa and latin America Section
5
12
19
OFFICIAL USE ONLY
189
187
187
L87
U8U
^
-
I N T E R E S T A R B I T R A G E , U N I T E D STATES /
Thursday
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C A N AD A
fig
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
I
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FORWARD RATE \
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 IN FAVOR OF CANADA +
1960
1961
1962
1963
-
INTEREST ARBITRAGE, N E W Y O R K / L O N D O N
3 - M O N T H TREASURY BILL RATES
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LONDON
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COMMERCIAL BANKS
BILLS, INTERBANK
LENDING
D E P O S I T RATES
RATE A N D
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DEUTSCHE MARK
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FORWARD RATE
DISCOUNT ( — I
INTERBANK LOAN RATE
TREASURY B I l l S
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RATE D I F F E R E N T I A L W I T H F O R W A R D
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EXCHANGE COVER
IN FAVOR OF FRANKFURT { + )
I RE A SU R Y Bills
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INTEREST A R B I T R A G E , F R A N K F U R T /
LONDON
Friday figures
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
P . r cent per
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 S T E R L I N G
^ / ~ \ V G E R M A N
TREASURY BILLS
I I i 1 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
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1961
1962
1963
S H O R T - T E R M I N T E R E S T RATES #
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\>
L O N G - T E R M B O N D YIELDS
W
I N D U S T R I A L STOCK I N D I C E S *
stocks traded oh the
Tokyo exchange.
S P O T E X C H A N G E RATES - M A J O R C U R R E N C I E S A G A I N S T U . S . D O L L A R
Above par
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1963
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