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DIVISION OF INTERNATIONAL FINANCE BOARD OF tOVIRNOM H. 13 November 9, 1966. No. 273 Y - G A P T LAL MARKET DEVELOPMENTS ABROAD I. II. III. I. Japan: Japan Nine Charts on Financial Markets Abroad Latest Figures Plotted in H. 13 Chart Series Money and Capital Markets in September-October 1966. 1. 2. 3. 4. 5. 6. 7. 8. 9. Summary Money market Interest rates Bank loans and discounts Bond market Stock market Foreign trade Foreign reserves and capital flows Foreign exchange 1. Summary. Japan's international reserves have been declining generally since March of this year. The foreign trade accounts have remained in surplus, though on a reduced scale as import expansion has outpaced growth in foreign sales-. Much of the downward pressure on Japan's reserve position has been due to a shift from dollar acceptance to domestic yen financing for imports, leading to reductions in Japanese short-term borrowing in the U. S., as illustrated in Table 1. The shift in financing was probably a major factor behind the reduction of $ 143 million in short-term borrowing in July, when the largest monthly decline in reserves was registered. Reserves have also been declining this year because of increased capital outflows. Table 1. Japan: Short- and Long-term Borrowing in the U. S. (in millions of dollars) Change during year 1962 1963 1964 1965 1965 III IV Change during period 1966 May June I II Short-term claims-V Long-term claims JV 212 50 431 128 482 136 -59 15 -125 - 8 - 4 -26 16 -49 -11 l28 -23 - 5 -26 -19 TOTAL Security flotations 262 141 559 200 618 0 -44 63 -133 —20 -30 20 5 -77 0 0 -28 0 -45 0 403 759 618 19 -113 -10 5 -77 -28 -45 TOTAL -143^/ -50E( - 3 f i / -loE' JL/ U. S. claims on Japan as reported by U. S. banks j>/ Preliminary. NOTE: See Tables 7 and 8 for adjustments to the figures on claims that might affect the changes indicated here. Newly reported data added $150 million to short-term claims in 1964, and $47 million and $45 million to long-term claims in 1963 and 1964, respectively. OFFICIAL USE ONLY (Decontrolled after 6 months) OFFICIAL USE ONLY -2- International reserves continued to decline in September-October, dropping $44 million to $2,019 million. The seasonally adjusted trade balance registered a surplus of $ 13 million in September, somewhat lower than in earlier months, because of a substantial rise in imports. In the foreign exchange market, the yen remained generally weak and the forward premium declined due to a moderate depreciation in the three-month foi$ard rate. On the domestic "side, the money market continued to remain relatively easy in September and October following a temporary tightening in August. Commercial bank interest rates continued to decline through August and bank credit expanded only moderately. The volume of monthly bond issues has been rising in recent months and National Government: bond issues were easily absorbed in September. Stock prices were generally depressed, partly because the governmentsponsored stock-buying agencies were selling shares acquired previously. 2. Money market, Money market conditions were relatively easy in September-October following a brief tightening in late August. Monetary developments had a net expansionary impact in September as a ¥24 billion contraction in net Bank of Japan credit and a ¥2 billion expansion in bank notes was more than offset by a Treasury deficit of ¥37 billion. Factors contributing to the easier market in September included government payments for early rice deliveries and a transfer of central government funds to local entities. 3. Interest rates. Call loan rates reported by the Bank of Japan remained unchanged in September-October. (See Table 2). These levels have been maintained since October of last year. Table 2. Japan; Average Call Loan Money Rates in Tokyo (per cent) Overnight 1/ Throughout August Throughout September Throughout October 1/ 2/ 3/ Unconditional —^ 5.475 5.475 5.475 5.840 5.840 5.840 6.570 6.570 6.570 For'settlement on the following day. Repayable at a day's notice„ Repayable at a day's notice in the following month. Newspaper reports ? however, indicate that a temporary tightening of market conditions in August caused the rate on some call loans to exceed the Bank of Japan's "guidance," or suggested maximum, rate of 6.75 per cent. Market sources have also indicated that the compound" call loan rate based on a weighted average rose from" 6.48 per cent in April-May cf this yea? to 6.66 per cent in mid-August. OFFICIAL USE ONLY OFFICIAL USE ONLY The average interest rate on commercial bank loans and discounts continued to decline, dropping to 7.48 per cent in July and 7.45 per cent in August. This contrasts with the previous peak of 7.99 per cent reached in late 1964. 4. Bank loans and discounts. Bank credit continued to expand at a moderate rate in August, increasing 0.8 per cent as against 1.1 per cent a year earlier. Loans -and holdings of securities increased 1.8 per cent and 0.3 per cent, respectively, but bills discounted fell 1.2 per cent. Bank deposits rose 0.8 per cent, the same as a year earlier. According to press reports, long-term credit banks and other trust and banking institutions have recently been stepping up their purchases of.-SLtocks in selected non-manufacturing enterprises. The banks are reportedly interested in further strengthening their controlling interest in these enterprises. Bank of Japan credit contracted in September as loans were reduced ¥24 billion. (See Table 3). For the third quarter as a whole, however, Bank of Japan credit was expansionary, contributing to the general ease in the money market. Table 3. Japan: Changes in Bank of Japan Loans and Holdings of Securities (1) Period (2) + (3) Net increase (+) or decrease (-) (2) Loans: Increase (+) or decrease (-) (3) Net purchases (+) or sales (-) of securities 1964 I Quarter II Quarter III Quarter IV Quarter •*203.3 + 75.7 +106.1 -329.6 + 36.7 +121.0 + 97.5 -300.5 +166.6 -196.7 + 8.6 - 29.1 1965 I Quarter II Quarter III Quarter. IV Quarter +217.5 -124.0 + 89.8 -129.8 +216.5 - 14.4 +133.1 -182.0 + 1.0 -109.6 - 43.3 -311.8 1966 I Quarter II Quarter III Quarter +276.0 - 29.9 +188.4 - 3.2 - 29.3 + 17.1 +279.2 - 0.6 +171.3 +120.8 + 91.2 - 23.6 + 27.8 + 12.9 - 23.6 93.0 78.3 July August September OFFICIAL USE ONLY OFFICIAL USE ONL 5. Bond market. The volume of bond issues continued to rise during the April-July period. issues in July totaled ¥247 billion, up ¥8 billion from June. The increase was due entirely to a sharp rise in public corporation bond issues, as new issues of bank and industrial debentures tapered off. In August, new issues of bank debentures increased ¥9 billion to ¥143 billion, but new issues of industrial debentures were off ¥7 billion to ¥28 billion. Data are not yet available on new issues of public corporation bonds. Yields on local government securities, public corporation bonds, and one-year bank debentures remained at their 1964-65 levels of 7.354, 7.053, and 6.224 per cent, respectively, in September. The yield on industrial bonds fell slightly to 7.465 per cent. Data are not yet available on long-term bank debentures in September but these yielded 7.282 per cent in August. In September-October the Government continued to float part of the ¥700 billion in long-term national bonds scheduled for issue during the current fiscal year. A total of ¥120 billion was easil absorbed in September, mostly by the commercial and long-term credit banks. Present plans call for the further issue of ¥230 billion during the fourth quarter, consisting of ¥80 billion in October, ¥130 billion in November, and ¥20 billion in December. ' On October 1, 1966, the Tokyo and Osaka stock exchanges formally listed f National Government bonds on their exchanges for the first time since the end of the Second World War. The exchanges listed ¥200 billion in bonds issued last January-March, and an additional ¥210 billion is scheduled for listing in December of this year. 6. Stock market. Stock prices continued to remain September-October following earlier highs in July and April. stock' average remained in the 1400 1 s during September-October was ¥1,445, or 9 per cent below the high for the year reached Table 4. depressed in The Dow Jones and on November 7 in April. Japan: Dow Jones Average of 225 Stocks, First Section of Tokyo Exchange August 29 ¥1 ,457 September 5 12 19 26 1 ,457 1 ,442 1;,436 1;,468 October November 3 11 17 24 31 ¥1 ,469 1 ,442 1 ,433 1.,414 1;,441 7 1 ,,445 1965 High Low ¥1,409 ¥1,020 1966 High Low ¥1,589 ¥1,410 According to the October 4 Japan Economic Journal, the Japan Securities Holding Association will sell about ¥60 billion in stocks between October of this year and March of 1967. The Association was formed in January of 1965 and engaged in heavy purchases of stocks to support the market. Sales of stocks earlier this year depressed stock prices to such an extent that sales were suspended in mid-June. OFFICIAL USE ONT.Y OFFICIAL USE ONLY 7. Foreign trade. After levelling off in March-May, seasonally adjusted exports rose sharply in June-July. Following a dip in August, exports in September rose close to the high level reached in July. In the third quarter, exports averaged about 13 per cent higher than a year earlier. (See Table 5). Imports have a||o been rising and increased sharply during June-September. The third quarter average was 18 per cent higher than a year earlier. The seasonally adjusted balance on trade account has generally remained in surplus since early 1965, and averaged $33 million monthly during the first nine months of this year. Tiab'le 5. Japan: Seasonally Adjusted Foreign Trade, Monthly or Monthly Averages — (in millions of dollars) 1965 III IV Imports Exports Balance a/ b/ 685 _732 + 47 I 693 694 + 1 741 788 + 47 II 762 790 + 28 1966 Apr. May III 805^/ 828b/ + 231/ 769 _787 + 18 763 781 + 18 755 _802 + 47 July Aug. Sept. 770 851 + 81 817 _Z92 - 25 827 840 + 13 All figures on a customs basis. Preliminary. 8. Foreign reserves and capital flows. International reserves continued to decline in September and October, falling $19 and $25 million, respectively. At the end of October official reserves were $2,019 million, down $90 million from the previous peak reached last February. This year's general decline contrasts with the steady rise in reserves during the last half of 1965. While the trade balance has been in surplus, there have been substantial net outflows on capital and services account. On a transactions basis, the surplus on trade account has been large in recent months, but the net short-term capital outflow has increased, with the result that international reserves have beer declining. (See Table 6). Reserves fell $50 and $19 million in July and September, respectively, but increased $9 million in August. Table 6. Japan: Balance of Payments on an Exchange Transactions Basis (in millions of dollars) I Trade account balance Services balance Current account 51 -44 7 1965 II III 85 -58 27 173 - 56 117 IV I II III 1966 July Aug. Sept. 151 ~ 54 97 80 99 167 :_43 124 177 - 46 131 176 - 40 136 147 OFFICIAL USE ONLY ill ill 28 42 105 OFFICIAL USE ONLY Table 6 (Cont.) I Net long-term capital receipts Net short-term capital receipts Net balance on capital account Errors and omissions Overall balance of payments NOTE, 1965 III II IV I II III 1966 July Aug. Sept. 5 -10 - 24 - 23 -45 - 22 33 - 16 - 30 - 54 11 -44 - 80 2 18 -13 -18 -104 -156 I_51 -106 16 -54 -103 - 41 -32 -40 -138 - 6 -11 - 8 - 10 4 - 4 - 17 -37 6 46 1 - 2 - 20 6 -172 - 81 -160 9 - 46 + 36 - 50 9 - 19 - Data may not add exactly because of Quarterly data are monthly averages rounding. These data also differ from those in the earlier table on foreign trade as these are on an exchange transactions, rather than customs, basis, and are not seasonally adjusted. Preliminary data indicate that short-term claims on Japan, as reported by V. S. banks, fell sharply in July and August, by $ 143 and $50 million, respectively. This brought the amount of total claims down to $2,535 million, or $226 million below the level at the end of 1965. (See Table 7). Part of the decline is due to .a shifting from dollar to yen import financing. Table 7. 1961 i.962 1963 1964 1965 1966 a/ b/ Short-term Claims on Japan Reported by U. S. Banks (in millions of U. S. dollars) Jan. Feb. Mar. Apr. 875 1,601 1,697 2,247 2,742 2,692 952 1,685 1,691 2,340 2,746 2,694 .1,069 1 ,778 1 ,751 2 ,400 2 ,861 2 ,777 1,159 1,775 1,876 2,394 2,833 2,777 May 1,196 1,762 1,898 2,421 2,834 2,754 July 1,272 1,758 1,872 2,469 2,880 2,728 1,341 1,765 1,877 2,416 2,831 2,585^/ 1,335 1,767 1,798 2,472 2,830 , 2,535*/ Sept. Oct. 1,288 1,711 1,890 2,493 2,755 1,281 1,710 1,904 2,488 2,656 Nov. 1 ,292 1 , 5 2 8 ^ 1 ,662 1,740 2 ,017 2 ,496 2 ,683 Preliminary. Includes newly reported data totaling $52 million in December 1961, $157 million in December 1964 and $10 million in December 1965. Long-term claims on Japan also continued to'decline in July and August, falling by $3 and $10 million, respectively. (See Table 8). Since the record high of $483 million in May of last year, U. S. claims have fallen by $90 million. OFFICIAL USE ONLY OFFICIAL USE ONLY Table 8. a/ b/ Jan. Feb. Mar. il 1961 1962 196,3 1964 1965 1966 Long-term Claims on Japan Reported by U. S. Banks (in millions of U. S. dollars) May 19 24 74 280 455 438 19 25 74 295 454 441 18 31 76 311 472 434 19 28 83 319 479 430 19 18 29, , 49 104— 111 323 325 479 483 406 425 June July Aug. Sept. 20 50 119 329 482 403*/ 19 54 136 332 475 3932/ 25 54 143 351 471 Oct. Nov. Dec. 23 62 146 352 464 25 69 170 269 462 249 24 74 £/ 4302/ 445 Preliminary. Includes newly reported claims totaling $1 million in May 1963, $46 million in December 1963, and $45 million in December 1964. According to newspaper reports, Japanese banks have been reducing the rate of utilization of their overseas credit lines. The ratio of borrowings to credit lines fell from about 90 per cent last March to about 70 per cent recently. The overseas foreign banks are reportedly advising the Japanese exchange banks that unless they raise the ratio of their borrowings to established credit lines, the credit lines might be reduced. The ratio of international reserves to the note issue of the Bank of Japan fell to generally lower levels in August and September. (See Table 9). At the end of September the ratio was 31.6 per cent as compared to 34.1 per cent in January. Table 9. End of Period Japan: Ratio of Reserves to Bank Notes International Reserves (billions of yen) 1959 1960 1961 1962 1963 1964 1965 1966 January February March April May June July Augus t September Bank Notes Issued (billions of yen) Reserves/ Bank.NoteS (per cent) ¥520.9 701.6 599.8 727.9 740.9 719.6 785.5 ¥1,029.4 1,234.1 1,480.1 1,745.9 2,057.4 2,298.8 2,563.8 50.6 56.9 40.5 41.7 36.0 31.3 29.6 749.5 759.2 759.2 755.3 754.6 757.4 739.4 742.7 735.8 2,200.5 2.251.1 2.280.4 2,312.9 2.227.5 2.368.2 2,397.7 2.324.6 2.326.7 34.1 33.7 33.3 32.7 33.9 32.0 30.8 31.9 31.6 OFFICIAL USE ONLY OFFICIAL USE ONLY -8- 9. Foreign exchange. The yen remained generally weak and under pressure in September and early October. The spot rate for the yen remained at very depreciated levels during this period except for a very mild strengthening in late September. The three-month forward rate tended to depreciate during the period, with the result that the forward premium narrowed. From a level of 0.66 per cent in early September, the premium fell to 0.35 per cent in mid-October. (See Table 10). The general weakness reflects the continued heavy outflow on capital account. Table 10. Japan: Customer's T. T. Exchange Rate of Bank of Tokyo in Tokyo (yen per U. S. dollar) Yen-dollar spot middle rate Three-month forward middle rate Forward premium in per cent per annum August 15 22 29 362.45 362.50 362.50 361.95 361.95 361.95 .55 .61 .61 September 5 12 19 26 362.55 362.60 362.60 362.60 362.00 362.05 362.15 362.15 .61 .61 .50 .50 October 3 11 15 362.55 362.60 362.60 362.10 362.28 362.28 .50 .35 .35 Prepared by: Robert F. Emery, Asia, Africa and Latin America Section, Division of International Finance. OFFICIAL USE ONLY NEW Y O R K , L O N D O N / M O N T R E A L : YIELDS FOR U.S. DOLLAR INVESTORS O N 3 - M O N T H F U N D I DOLLAR DEPOSIT RATES; NEW YORK-LONDON EURO DOLLAR DEPOSIT U . S . C E R T I F I C A T E OF D E P O S I T J I , E U R O D O L L A R OVER I 1 U . S . C E R T I F I C A T E OF D E P O S I T FINANCE CO. PAPER RATES , (covered): , QUOTED IN NEW YORK CANADIAN FINANCE COMPANY! K U.K. HIRE PURCHASE U.S. FINANCE COMPANY Mir J un. Sept. Die. Mar. Ju_n. Sept. Die. Mar. Ju». Sept. Dec.; L O N D O N : YIELDS FOR U.S. DOLLAR INVESTORS O N 3 - M O N T H FUNDS EURO-DOLLAR DEPOSIT RATES 1 8 0 DAY I 9 0 DAY CALL 3 0 DAY m REPURCHASE AND LOCAL AUTHORITY : DEPOSIT RATES (covered) EURO-DOLLAR DEPOSIT/A 1 | HIRE PURCHASE DIFFERENTIAL FAVOR HIRE P U R C H A S E I FAVOR E U R O D O L L A R LOCAL A U T H O R I T Y DEPOSIT EURO-DOLLAR DEPOSIT r T T T FAVOR LOCAL AUTHORITY FAVOR E U R O D O L L A R 1964 1965 1966 (INTEREST ARBITRAGE: FRANKFURT INTERBANK FRANKFURT/LONDON, LOAN RATE VS. ZU R ICH / L O N D O N j LONDON EURO DOLLAR IN INTERBANK RATE ( C O V E R E D ) T E R M S Oi LOAN RATE EURODOLLAR T T DIFFERENTIAL | ZURICH DEPOSIT RATE VS. LONDON | | EURO-DOLLAR I RATE IN FAVOR EURO-DOLLAR (COVERED) TERMSVok/SVh NCS EURO DOLLAR SWISS DEPOSIT RATE r DIFFERENTIAL FAVOR Z U R I C H FAVOR E U R O D O L L A R n PRICE o r GOLD IN LONDON 35.2 35.0 1964 1965 1966 INTEREST ARBITRAGE, UNITED S T A T E S / C A N A D A 3-MONTH TREASURY BILL R A T E S C A N . F I R . CO. IPAPER CANADA - — ^ UNITED STATES I I 1 1 1 r i i 1 l BILL R A T E 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 i k N K I I ^ S P R E A D II N IFAVOR OF!CANADA i 1 I D OLLAR | I i THU oisAo jJh j A ^ | M i i l i m ViH 7 ' A W F O R W A R D RATE i u m i i i I M i J_j i i i i i M i l , . I I I I 1 I l I I 1 1 1 1 FAVOR CAI PRIME FINANCE PAPER FAVOR CANADA j i TREASURY BILLS FAVOR U . S . 1963 1964 1965 1966 INTEREST ARBITRAGE, NEW Y O R K / L O N D O N Friday Figures 3-MONTH TREASURY BILL RATES LONDON U.K. LOCAL AUTHORITY DEPOSITS NEW YORK RATE DIFFERENTIAL FORWARD AND STERLING I 3 - M O NTH ! j 2 S P R E A D I N F A V O R OF L O N D O N PREMIUM 0 DISCOUNT FORWARD RATE 2 RATE DIFFERENTIAL WITH FORWARD EXCHANGE COVER (NET INCENTIVE) I N F A V O R OF L O N D O N I N F A V O R OF N E W Y O R K 1963 1964 1965 1966 SHORT-TERM INTEREST RATES* U.K. EURO-DOLLAR - LONDON I U.S. SWITZERLAND JAPAN GERMANY y^v CANADA U.S. 1962 1963 1964 1965 * ' 3 month Ireoiury bill rales for all <ovntriet except Japan ^Average role on bonk loom and discounts^) i 'Switx.erland[/3 month deposit rote)1 and Germany (interbank Loan Rote) 1966 I L O N O . T I R M BOND Y t l L D t GERMANY £ J U (EURO-DOLLAR BQNDSV^ I D O ILL 5 3 CANADA] 1 S P O T EXCHANGE RATS5 - M A J O R CURRENCIES AGAINST U.S. DOLLAR S W I S S FRANC GERMAN MARK U.K. STERLING ,_ FRENCH FRANC. J ' RKIGIAK ^RANC DUTCH GUILDER ITALIAN LIRA V ! ^CANADIAN DOLLAR JAPANESE YEN H9B4 n 3 - M O N T H FORWARD 1 X C H A N O l RATES AGAINST U.S. DOLLARS— NEW YORK #fW«v « hr ort Mf w w GERMAN MARK I * SWISS FRANC \ r I y I I 1 POUND STERLING Discom2 DUTCH GUILDER FRENCH FRANC CANADIAN DOLLAR OISCOUNTAGAINST POUND S T E R L I N G - L O N D O N frjgoy »«ui.« SWISS FRANC GERMAN MARK U.S. DOLLAR rise* 1885 lieel INDUSTRIAL STOCK INDICES 300 SWITZERLAND 250 U.K. 200 1 ri U.S. 150 U_L1_: 100 300 250 200 i CANADA I /^>v 150 1963 1984 Rook Corporohon indu * fr *o I i l c k index 1965 1966 November 9, 1966 H, 13 No.273 Latest Figures Plotted in H.13 Chart Series, 1966 (all figures per cent per annum) Upper Panel Chart 1 (Wednesday, 6. 75 Euro-$ Deposit (Friday, Nov. Finance co. paper: U.S. Canada Hire-purchase paper, U.K. Chart 2 (Friday, Nov. 4 4 ) 5. 6,25 6.38 6.75 -o,„ 6 0 +0.49 b. 75 7,19 Euro-$ deposit (average) 7.06 4, 25 5.. 29 6.,38 5o,08 U.S. U.K. Canada Interbank loan rate (German) (Oct, 24-31) Euro-$ deposit (London) Zurich 3-mo. deposit (Date: Oct, 15 Japan composit rate Aug, 31 (Date: 7o. 1? 6, 75 ) 4» 25 ) 7, 45 35.165 ) 4- 72 U.K. War Loan (Thurs. ,0c: 27) 87 U.S. Gov't. (Wed., Nov German Fed. (Fri., Oct Swiss Confed. (Fri. , Oct 2 28) 28) 8, 08 4, 13 ) Canadian Gov't. Chart 4 (Friday, Nov. 4 Treasury bills: Canada U.S. Spread favor Canada ) 5,08 5.29 -0, 21 Net incentive (Canada +) Canadian finance paper (Wed., Oct.. 26; 5, 7 6 Netherlands Gov't perpetual 3% (Friday. Oct 2 8 ) 5, 97 Euro-$ bonds (Fri.,Oct 6. 58 28 ) For descriptions and sources of date, see special supplement to H.13, Number 239, March 16, 1966. Forward Canadian $ ) Chart 7 ) (Date: Oct. 15 Price of gold (Friday, Oct. 28 o? Forward pound 6.75 Interbank loan (mid-point) Zurich 3-mo. deposit H Net incentive (U.K. +) Treasury billa: Hire-purchase paper 6.84 (Oct. 28) Local-authority deposit 6c 72 (Oct. 28) Chart 3 Upper Panel (Period: Oct. 24-31 ) Lower Panel Spread favor U.K. Chart 6 (Friday, Nov. 4 ) 90-day 180-day 6.38 5. 29 U.K. U.S. 88 59 b.tf7 6. Euro-$ deposits: Call 7-day 30-day Treasury bills: 5. 75 U.S. certif. of deposit Lower Panel Chart 5 (Friday"! Nov. 4 Nov. 2 +0.07 6.25
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