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• OARD OF e O V E * N O « » DIVBION OF INTRANATIONAL FINANCE F C D K R A L R I H R V I SVSTKM H .13 No* 28 r October 6, 1961 ;;si i PITAL MARKET DEVELOPMENTS ABROAD I. II. I. Japan Nine Charts on Financial Markets Abroad Japan; Honey and Capital Markets During August On September 29, the Bank of Japan raised its basic discount rate from 6.935 to 7.3 per cent, increased its penalty discount rates> and raised commercial bank reserve requirements in order to restrain buoyant domestic demand and halt the deterioration in the balance of payments • Only two months earlier on July 22 the Bank had raised the discount rate from 6.570 to 6#935 per cent. The authorities had also taken other actions. In July, banks were asked to cut back their loans for equipment investment 10 per cent j on September 1, banks were authorized to accept export usance bills with terms up to five months rather than three months; and on September 18/ advance import deposit requirements, which previously had not exceeded 1 per cent, were increased to as high as 35 per cent for imports of consumer durables* The Bank of Japan's most recent actions indicate that the authorities now consider these earlier measures to have been insufficient to restore balance in the international accounts. In August there were several signs of further deterioration in the economy. The drain in international reserves, which began last May, was intensified as rising imports and reduced capital inflow contributed to a $116 million drop in reserves* A further drop of $111 million in September reduced reserves to $1,610 million. Bank of Japan credit accommodation to commercial banks rose to a new all-time high in August, more than double the level of last January. The stock market fell off in August and September to a level about 20 per cent below the July level. While the money market remained tight in August, the latest increase in the discount rate is likely to tighten money and capital markets further. Commercial banks are expected to increase their lending rates early in October in line with the increase in the discount rate. Money Market. A high level of net Treasury receipts contributed to somewhat tighter money market conditions in August than in July. Higher call loan rates reflected this increased tightness. The August Treasury surplus was ¥133 billion and foreign exchange operations withdrew an additional ¥33 billion from circulation. Offsetting these contractionary forces was an ¥88 billion expansion in Bank of Japan loans and discounts, and a decrease of ¥35 billion in note issue in circulation, both helping to increase bank liquidity. The Bank of Japan is also reported to have purchased ¥5>0 billion in government-guaranteed debentures from commercial banks in order to cushion the effects of the large Treasury surplus. The banks have agreed to repurchase these debentures by the end of November* NOT FOE PUBLICATION DECONTROLLED AFTER SIX MONTHS NOT FOR PUBLICATION Bond Market. Reduced new issues of public corporate debentures contributed to a lower volume of total new issues of debentures in July, From a level of ¥93 billion in June, the total fell to ¥8? billion in July. Issues of bank and industrial debentures, at ¥55 billion ami ¥22 billion In July, respectively, were relatively unchanged from the June level. New issues of public corporate debentures fell from ¥16 billion in June to ¥10 billion in July. On October 3, a $20 million bond issue offered by the Japan Development Bank in the United States was oversubscribed• The proceeds will be used to finance the construction of private electric utility facilities in Japani Issued in four lots, the offering ranged from $1.6 million of three-year, 5 per cent bonds to $15 million of fifteen-year, 6 per cent bonds. One day earlier the Mitsubishi Chemical Industries, Ltd#, placed privately in this country a $U.U million issue of dollar promissory notes due in October 1971 and a $2,0 million issue of capital stock* Interest Rates. The average interest rate for all commercial banks on loans and discounts, which had been declining from the July I960 peak of 8 S 22 per cent, rose slightly in July this year to 7.99 per cent. This reversal in the trend reflected the increase in the Bank of Japan's basic discount rate from 6,570 per cent to 6.935 per cent on July 22. With the latest increase in the Bank's rate to 7.3 per cent, effective September 29, the average interest rate is expected to show a further rise in October* The average yield on local government bonds fell slightly from 7*356 per cent in June to 7.35U per cent in July, but the yields on corporate debentures rose from 7*507 to 7.513 per cent in the same period. With the two latest increases in the Bank of Japan discount rate, debentures yields are likely to rise, thus reversing the downtrend which began in the spring of this year. There were indications in August of increased tightness in the call loan market. The highest, Tokyo call loan rate for those loans callable at a day's notice was 13.87 per cent in August compared to 12.05 per cent in July* Average Monthly Interest Rates on Bank Loans and Discounts March June September December 1/ 1958 1959 I960 1961 8.63 8.61 8.L1 8.27 8.18 8.08 8.06 8.11 8.21 8.22 8.lit 8.08 7.92 7.88 7.89 July 1961. NOT FOR PUBLICATION NOT FOR PUBLICATION - 3 - Bank Loans and Discounts« Although bank credit had been rising at a faster rate in the first half of this year than a year earlier, the rate of expansion in July was less than in July of I960. Bills discounted rose 1*8 per cent compared to 2.7 per cent in July of I960; security investments were up 1,8 per cent, slightly less than the 1.9 per cent rise a year earlier. Bank loans rose 1.3 per cent, the same as last year. The proportion of bank loans and discounts extended for equipment purchases in July was the same as in May and June. Bank deposits declined slightly in July* Commercial Banks: Quarterly changes in Deposits and Principal Assets (In billions of yen) - . M A I N Deposits Per cent change Loans Per cent change A S S E T S Per Bills cent Discounted change Securities 19# I II III IV +201 - 22 +276 +U75 3.1 —0*3 U.l 6.8 +1U3 + 83 +136 +207 3.6 2.0 3.2 lw7 + 21 + 86 +1U9 +169 1.2 U.9 8.1 8.5 I960 I II July III IV +2U9 + 96 • 76 +506 +607 3.U 1.3 1.0 6.5 7.3 +176 +167 + 63 +2l*U +317 3.8 3.5 1.3 U.9 6.7 + 5U + 87 + 61 +172 +185 1961 I II July +502 +169 - 61 5.7 1.8 -0.6 +326 +206 + 80 5.9 3.5 1.3 + 1*8 +133 + 51 ^ + + + + Per cent change 51 62 58 66 5.2 6.1 5.3 5.8 2.5 3.9 2.7 7.5 7.5 + 78 + 75 + 26 + 35 +127 6.5 5.8 1.9 2*6 9.1 1.8 U.9 1-.8 +103 +10U + 31 6.8 6.U 1.8 Stock Market. The stock market continued its general downtrend in August and the first half of September. During the last half of the month the stock price averages remained at about the same level. From a high of ¥1,830 on July 18, the average fell 19 per cent to ¥1,1*82 on September 18, The continued balance of payments deficits appear to be the main factor accounting for the decline. Japan opened its second stock market in Tokyo, Osaka, and Nagoya on October 2, The issues listed on this exchange include those of small companies not, previously listed on the first stock exchange and new Japanese companies. Dow Jones Average of 225 Stocks Tokyo Stock Exchange ^ July August 26 2 9 16 23 ¥ 1,77U 1,76U 1,673 1,739 1,685 August 30 September 6 13 20 27 ¥ 1,615 i,5U5 1,5U6 1,509 i,5oo I960 High Low ¥ 1,357 ¥ 869 1961 High Low ¥ 1,830 ! 1,367 ^ NOT FOR PUBLICATION - It - NOT FOR PUBLICATION Foreign Trade. A sharp expansion in imports in August contributed to an increase in the trade deficit as exports rose only slightly. The monthly averages of seasonally adjusted trade figures (in millions of dollars) detailed below, indicate that the deficit rose from $119 million in July to $179 million in August„ Trade Balance Exports . Imports 1960 - 30 m 1961 I 1*20 3hh - 76 II U66 -115 351 April - 78 36L Wi2 May =133 L72 339 June =133 hQh 351 July #8 -119 U77 August -179 363 5b2 Foreign Exchange«, Except for a slight easing early in September in the three-month forward selling rate? the yen continued to remain under pressure in August and the first half of September as the loss of international reserves continued<> The spot selling rate of dollars for yen during this period was at the extreme official limit, unchanged from the level since late April. The forward discount of the yen against the dollar remained at 1.55 per cent per annum in August but eased slightly to l.Wi per cent early in September as the three-month forward selling rate dropped back to the level of late July, Customer's T» T« Exchange Rates of Bank of Tokyo in Tokyo Forward discount Yen-dollar 3-month in per cent per annum Date spot middle rate forward middle rate August^ U h 361.10 11 ^ 36iao 1.55 361.10 361.10 361,10 362,50 362.ho 362.bo l.bli l.Ui 361c10 September i 8 15' 1.55 362.50 362.50 362,# 362,50 361,10 18 2$ 1.55 Far Eastern Section * IIo Nine Charts on Financial Markets Abroad Chart Chart Chart Chart Chart Chart Chart Chart 1 = Interest Arbitrage IT.S ./Canada 2 = Interest Arbitrage New York/London 3 = Interest Arbitrage New York/Frankfurt li = Interest Arbitrage Frankfurt/London 5 = Short-term Yields 6 -•= Long=term 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 INTEREST ARBITRAGE, UNITED STATES/'CANADA Thursday figures THREE-MONTH TREASURY RATE D I F F E R E N T I A L A N D BILL RATES FORWARD CANADIAN DOLLAR Of CANADA + RATE DIFFERENTIAL W I T H FORWARD EXCHANGE COVER INCENTIVE IN f A V o i Of CANADA + INTEREST ARBITRAGE/ 3-MONTH TREASURY NEW YORK / LONDON BILL RATES w RATE D I F F E R E N T I A L A N D 3 - M O N T H FORWARD STERLING SPREAD IN FAVOR OF LONDON FORWARD RATE Dliceeei — T RATE D I F F E R E N T I A L W I T H FORWARD EXCHANGE COVER rv/v IN FAVOR OF NIW YORK 1960 INTEREST ARBITRAGE, Friday figures 3 MONTH GERMAN TREASURY 3-MONTH NEW BILL YORK/FRANKFURT RATES INTERBANK AND* LOAN RATES — INTERBANK LOAN RATE 1 RATE,DIFFERENTIAL AND ' FORWARD DEUTSCHE MARK 1 LOAN RATE — - V DISCOUNT ( - ) RATE D I F F E R E N T I A L W I T H I forward dollar role FORWARD EXCHANGE i German commorciol fc COVER '6 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 Friday figures 3 - M O N T H TREASURY BILLS — A N D L E N D I N G RATES GERMAN RATE D I F F E R E N T I A L | AND -FORWARD STERLING GERMAN \ INTERBANK > LOAN RATE 3-MONTH FORWARD STERLING RATE D I F F E R E N T I A L WITH FORWARD IM LOAN RATE EXCHANGE v IL COVER 3-month treasury bill rales for all toui 3 month rale lor U S dollar deposits Japan (3 month deposit role) and Switzerland (3 month deposit role) L O N G - T E R M B O N D YIELDS e /\7 V INDUSTRIAL STOCK INDICES * fj SWITZERLAND / 7" 1961 Noll. Japan Index of oil ilocki Iroded on Tokyo eichange \ r MAJOR CURRENCIES IN T E R M S O F T H E S P O T U . S. D O L L A R ' - ; v ITALIAN LIRA JAPANESE YEN 1960 , 1961 3-MONTH FORWARD RATES - L O N D O N PREMIUM + FRENCH FRANC ; QUOTATIONS /
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