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DIVISION O F I N T E R N A T I O N A L F I N A N C E V B O A R D O F GOVERNORS F E D E R A L RESERVE SYSTEM H. 13 October 7, 1964. No. 166 (CAPITAU^KEI^EVELOPMENTS ABROAD I. II. III. I• Japan Nine Charts on Financial Markets Abroad Latest Figures Plotted in H. 13 Chart Series Japan: Money and Capital Markets in August-September Japanese foreign borrowing continued to show signs of slackening; in recent months except for short-term borrowing in Europe. Short- and longterm liabilities to the U.S. (as reported by U.S. banks) fell $49 million in July, according to preliminary data. This compares with increases of $290 and $84 million in the first and second quarters of this year, respectively. (See* Table 1). Long-term borrowing in Europe has been dormant lately, and there were no reported long-term borrowings in August or September. Table 1, Japan: Short- and Long-term Borrowings in the U.S. (in millions of U.S. dollars) 1960 1961 1962 1963 I - •Short- term claims i/ umg-term claims i/ TotalSecurities 2^1 Total 1/ 482 3 722 5 485 Change during period 1963 1964 IV I II May June - II III 212 50 431 175 11 _2 121 _35 IK _32 262 606 13 156 50 84 60 240^110 30 58 141 200 51 515 785 403 806 64 July 2 V. 1 106 229 __6_1 69^/ 15— 17 _4 48^/ _2.f/ - • * 387 290 84-a/ 21 5C-§/ -495/ 5 0 _0 . _0 _0 392 290 84—^ 21 50^/ • 0 -4<ra/ Bank-reported liabilities to the U.S. New security flotations. Preliminary. Data on short- and long-term claims since early 1962 have recently been revised substantially by the U.S. Treasury. Short-term borrowing in Europe, however, has reportedly continued to increase, prompting the Japanese to take measures in July and August in an attempt to restrain such borrowing. (See previous months' capital market report). On September 8, the Ministry of Finance also suggested to Japanese foreign exchange banks that the maximum rates paid on Euro-dollat deposits be lowered slightly from 4-1/2 to 4-3/8 per cent for one-month deposits and from 4-5/8 to 4-1/2 per cent for three-month deposits. Although the authorities indicated this change OFFICIAL USE ONLY ' (Decontrolled after 6 months) }Lt'j-'.rc-1AL I S J : P M / Y was being made mainly in order to adjust the Japanese rates to other changes in the^market, it is'likely that the action also had the purpose of restraining further Japanese short-term borrowing. j Internationa:! reserves rose $12 million in September for the second • consecutive'straight month to a luvel of $1,939 million. This reflected prim a r i l y the improved performance on trade account. In foreign exchange markets, the yen strengthened substantially from late August through mid-September. On t£ie domestic side, the money market continued to remain tight, and call loan rates levelled off in August and September at between 11 and 13 per cent,- the highest* levels since 1962. Commercial bank borrowings from the central bank rose in July and August. At the same time, average bank lending rates continued to rise through July, continuing the uptrend since February. •Bank credit expanded at a slower rate in July than a year earlier, but at a somewhat faster rate than in January and February of this year. The stock market continued to remain in the doldrums despite an announcement in early September that substantial financial aid would be extended to the market by the Bank of Japan. Money market. The money market continued to remain tight in August and jthe first four weeks of September. • During August monetary developments had a slightly contractionary impact on the market, but money market' rates remained generally unchanged at a high level after August 3. An increase of .¥114| billion in Bank of Japan credit and a decrease of ¥29 billion in bank notes in circulation in August was more than offset by the contractionary impact from net Treasury receipts of ¥151 billion. Interest rates. Except for an increase in early August, call loan rates, remained unchanged during the rest of August and first four weeks of September. The rate for unconditional money rose from 10.95 per cent on August 1 to 11.32 per cent on August 3 and remained there through September 26. The rates for overnight and over-month-end money also increased by the same degree early in August and remained unchanged through September 26. (See Table 2). Table 2. Japan: Average Call Loan Money Rates in Tokyo (in per cent per annum) Overnight 1 / July 4 U 18 25 August 1 8 15 22 29 I . Unconditional 2/ Over-month-end — ^ 10,220 - 10.220 10.585 10:585 10.585 10.585 10.950 10.950 12.775 12.775 12.775 12.775 10.585 10.950 10.950 10.950 10.950 10.950 11.315 11.315 11.315 11.315 12.775 13.140 13.140 13.140 13.140 OFFICIAL USE ONLY OFFICIAL USE .ONLY Table 2. (cont.) Overnight —^ September 1/ If 3/ 5 12 19 26 ~ . 10.950 10.950 10.950 10.950 Unconditional Over-month-end — ^ 11.315 •. 11.315 11.315 11.315 13.140 13.140 13.140 13.140 For settlement on following day. Repayable at a day's notice. Repayable at a day's notice in the following month. The average monthly interest rate on bank loans and discounts rose further in June to 7.98 per cent. The previous low in the rate of 7.67 per cent was reached in January-February, and the uptrend since reflects the tight, money policy inaugurated last December and reinforced in January and March. Table 3. Japan; Average Monthly Interest Rate on Bank Loans and Discounts (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 7.98 frwk loans and discounts. Bank credit rose 1.1 per cent in J substantia2^~Tess than the 1.7 per cent rise a year earlier. Loans and bill^dis^rounted increased 1.2 and 1.4 per cent, respectively, while holdings of ^ g W i t i e s were unchanged. Bank deposits declined 0.2 per cent in July, c o m p ^ * L t o a 0.3 per cent rise a year earlier. This is the first drop since April. ^l||tiiough bank credit has recently been rising faster than earlier in the year, the rate of increase is still below that of a year earlier. The proportion of bank loans and discounts extended for purchases of equipment remained at 17>2 per cent in July, the same as in the previous two months. This level contrasts with the cyclical low of 16.3 per cent in March of 1963. Bond market. Npw issues of bonds were ¥131 billion in July, only slightly higher than the June level of ¥130 billion. «New issues of bank debentures were down ¥3 billion to ¥81 billion, while new issues of industrial debentures were up ¥4 billion to ¥22 billion. New issues of public corporation bonds were virtually unchanged at ¥27 billion. Yields on bonds and debentures were unchanged in July except for a slight decline in yields on industrial bonds. OFFICIAL USE ONLY OFFICIAL USE ONLY Stock market. Stocks generally drifted lower in August and September following a high for the year reached on July 3. On October 5 stocks approached the previous low for the year, down 12 per cent from the July 3 high. " Table — . Japan: Dow Jones Average of 225 Stocks, First Section of Tokyo Exchange July 27 ¥1 ,326 ' August 3 10 17 24 31 1.,304 1,,305 1.,285 1.,280 1,,276 - i September 7 14 21 28 ¥1;,286 1.,260 1;,248 1.,210 5 1,,207 October 1963 High Low *1:,634 ¥1;,201 1964 High Low ¥1.,369 ¥1.,2t)3 i In a move to bolster the sagging market, the Bank of Japan announced on September 1 that it would extend in the coming months a substantial amount of credit! to the Japan Securities Finance Company. Funds will be channeled by the J. S.F.jC. to the major securities companies in order to improve their liquidity and buying power, The specific amount of the credit was not announced, but some reports indicated it would be about ¥10 billion ($28 million). In the past, support measures have generally been based on increased credits from the commercial banks rather than the Bank of Japan. Foreign trade. The seasonally adjusted trade deficit remained relatively small in August at $53 million compared to $47 million in July. August imports were down 5 per cent, but exports were off 7 per cent. The rate of deficit in July and August is roughly consistent with overall balance of payments equilibrium and it represents a remarkable adjustment, involving a cut in the average deficit during the first quarter of about 70 per cent. The trade figures (monthly, or monthly averages, on a customs basis) in Table 5 are based on seasonal adjusjment factors computed by the Bank of Japan using the Census II (X-10) method. Table 5. Japan: Seasonally Adjusted Foreign Trade (in millions of U.S. dollars) 1962 II - III IV , 465 407 ' 450 428 466 417 492 "417 Balance -lis; - 58 - 22 - 49 - 75 I Imports Exports / 497 3(9 I 1963 III IV 573 463 - 99 -110 II 540 441 1964 I II May July Aug. 644 486 665 482 657 538 660 525 656 556 634 587 600 547 -158 -183 -119 -135 -100 - 47 - 53 Further trade, liberalization on October 1, was very small, with the liberalization rate (as calculated from the base year of 1959) being increased from 92.7 ber cent to 93.0 per -cent. OFFICIAL USE ONLY OFFICIAL USE ONLY Foreign reserves and capital flows. International reserves rose $12 million in September to a level of $1,939 million. This is the second consecutive month in which reserves have increased--the rise in August also being $12 million. At the end of September, however, reserves were still $163 million below last October's peak, For the first time since December of 1962, the current account in the balance of payments (as measured on an exchange transactions basis) was in surplus in August. Net receipts on current account totaled $65 million. The trade surplus was $100 million and net payments for services totaled $35 million, This contrasts with a slight deficit on current account of $1 million in July and a deficit of $102 million in May. Net long-term capital receipts were $35 million in August, but net short-term payments totaled $36 million. With an errors and omissions item of. minus $52 million, the over-all balance of payments registered a surplus of $12 million in August. According to preliminary data, Japanese short-term liabilities to the U.S. (as reported by U.S. banks) fell $53 million in July to $2,416 million. This represents the first substantial decline since August of 1963. (See Table 6). Presumably much of the decrease can be attributed to the recent declining trend in imports involving reduced amounts of acceptance financing. Table 6. 1959 1960 1961 1962 1963 1964 NOTE: a/ Jan. Feb. Mar. 168 362 875 1,601 1,697 2,247 175 372 952 1,685 1,691 2,340 204 420 1,069 1,778 1,751 2,400 Short-term Claims on Japan Reported by U.S. Banks (in millions of U.S. dollars) A Pr- Jul% Max 242 224 488 456 1,159 . 1,196 1,775 1,762 1,876 1,898 2,394 2,421 Aug. 269 260 256 628 586 497 1,272 1,341 1,335 1,758 1,765 1,767 1,872 . 1,877 1,798 2,4692/ 2,416a/ Sept. 262 660 1,288 1,711 1,890 Oct. Nov. Dec. 262 275 324 806 693 711 1,281 1,292 1 ,528 1,710 1,662 1 ,740 1,904 2,017 2 ,171 Data for 1962, 1963 and 1964 have been revised and include $52 million reported by banks initially as of December 31, 1961. Preliminary. - • . > There were no reported Japanese bond issues in Europe in August or September. However, two issues totalling $30 million,are scheduled for October. One of these is a $20 million, 15-year bond issue by the Japan Development Bank. The yield to subscribers will reportedly be about 6.2 per cent, with a coupon rate of 5.75 per cent. The other is a $10 million, 20-year, 6.5 per cent convertible debenture issue by the Komatsu Manufacturing Company, Ltd. The issue will reportedly be sold at par and this marks the first issue since mid-1963 offered at more than 6-1/4 per cent. OFFICIAL USE ONLY I 'OFFICIAL D E ONLY -6- Foreign exchange. From late August, through mid-September the yen strengthened substantially in both the spot and forward markets as the balanceof-payments situation continued to improve. The rate for spot yen strengthened from .¥362.35 on August 28 to. ¥361.65 on September 15, while the three-month forward rate went from .¥362.33 to ¥361.78 during the same period. Since the spot rate strengthened more than the forward, the forward discount widened from .03 pjar cent in mid-August to .28 per cent on September 14., 1 Table 7. Japan: Yen-dollar Spot middle • rate Three-month forward middle rate 362.35 362.35 7 15c - 21 f 28., 362.35 362.30 362.30 362.35 362.35 362.33 362.33 362.33 .03 .03 .02 1/ 4 : l'l 15 361.90 362.05 361.65 362.00 362.10 361.78 .11 .06 .14 ! July 31 } August Sept. .( 1/ Customer's T.T. Exchange Rate of Bank of Tokyo in Tokyo Forward discount in per cent per annum Premium. Asia, Africa and Latin America Section Chart 1 - International Money Market Yields for U.S. Dollar Investors jChart 2 - Interest Arbitrage, United States/Canada Chart 3 - Interest Arbitrage, New York/London Chart 4 - Interest Arbitrage for German Commercial Banks fcChart 5 - Short-term Interest Rates Chart 6 - Long-term Bond Yields Chart 7 - Industrial Stock Indices Chart 8 - Spot Exchange Rates - Major Currencies Against U.S. Dollar Chart 9 - 3-Month Forward Exchange Rate OFFICIAL USE ONLY Char, 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 l 3 - M O N T H EURO D O L L A R D E P O S I T V S . j C E R T I F I C A T E OF D E P O S I T ; Wednesday figures I P * r c>i>t p « r YIELDS EURO-DOLLAR DEPOSIT U . S . C E R T I F I C A T E OF D E P O S I T 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 Friday figures TREASURY B I L L S - i F u l l y H e d g e d CANADA r ~ COMMERCIAL PAPER-Fully H e d g e d U.K. HIRE PURCHASE ( C A N A D I A N F I N A N C E COMP~VU U.S. FINANCE COMPANY -k A — " onnum[ T> , ~ INTEREST A R B I T R A G E , U N I T E D STATES / CANADA id ay f i g u r e s * Per cenf per annum I I r r-r" 3^AT O N T H 1 1 1 TRE A S U R Y B I L ... R A T ES 6 1 i * N ADA - 1 j I1 - Zv - r^" v V - 1 1 1I 1 !• 1 1 1 1 I 1 RATE D I F F E R E N T I A L A N D i._ i i ~i RATE D I F F E R E N T I A L FORWARD : i WITH 1 1 T~" 1 1 1 1 11 CANADIAN i.. i FORWARD-EXCHANGE 11 DOLLAR . i. __ COVER NET INCittltitf tH fAVOR Of C M I I 1 II I M 1 1962 * TKorjdoy figure* 196f 1962, Friday thereafter 1 11 M III 11 11 1 1 1 1 INTEREST A R B I T R A G E , N E W Y O R K / L O N D O N 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 3 - M O N T H F O R W A R D S T E R L I N G J IN FAV KJ I s 1 1 . M 1 1 1 1 i i J S D 1962 IN 1 l' 1 i M i 3E CC) V E R , - - 1 - s * z < 1 J 1 1 1 :i rE D I I -FERE N T I A L . W I T I4 FOR 1WARID EXC = RA J 1963 r ; - I | 11 ii 1 1 | | I- 1 | | Si | 0 ' *: J s D M * 1964 | | i i i i M SI D 1965 j INTEREST 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 F r i d o yl t i g 3 - M O N T H TREASURY BILLS, I N T E R B A N K EURO DOLLAR LENDING RATE A N D D E P O S I T RATES 1 0 A H BATE J" EURO-DOLLAR I Q N D O H | GERMAN TREASURY BILLS RATE D I F F E R E N T I A L A N D FORWARD DEUTSCHE MARK FORWARD RATE D I S C O U N T ^ - 1 RATE D I F F E R E N T I A L W I T H NET I N C E N T I V E : ] I c FORWARD EXCHANGE COVER U T F A V O R OR FRANKFURT ( + ) INTERBANK LOAN R A T E / \ A A^XT-J 1964 W SHORT-TERM f INTEREST RATES' h | L \ | f Y ' I U R L O - D O L L A R - L O N D O N FL \ h V\—/ w h \ j T - r A/Vl K/X><k! ^ 1 J* i GERMANY 1 II II 1 II II II III 1 1 1 1 1 1 1 1 1 1 111111111 1 1 1 M i 1 1 1 I I II 1 : -- JAPAN - fv h . A^t I V'j u. s. "vVV 1 i yXAV^S^ yV - SWITZERLAND r " - M 1II II 1 U L > " -JA> M II II 1 1 1 1 1 1 1 1 1 11 11 11 11 1 1 1 11 11 11 11 1 1 1 11 II 1962 ,3-fl^onlh treasury bill roles f or oil countries except Japan. Jand Switzerland (3- month deposit rale). ^ •j- t 3-month rate for U S. dollar deposits in londonj (Average rale on bank loam and discount*"""! L O N G - T E R M B O N D YIELDS INDUSTRIAL STOCK INDICES 1958 = 100 . H o l l o » c a I« ' V-\V/ J00 r J D Z L J : 100 300 in- index of 2 2 5 industrial, and other slocks traded on the Tokyo exchange S P O T E X C H A N G E RATES - M A J O R CURRENCIES A G A I N S T U.S. DOLLAR SWISS FRANC GERMAN MARK U.K. STERLING i i I 1 i i FRENCH FRANC n Ab i | - BELGIAN FRANC K f - \ i J Po'L 1 DUTCH GUILDER 1 1 I 1 " v I 1 1 1 1 1 1 I I 1 I I 1 1 1 1 1 1 1 1 1 1 - U M V /-\ 1 - ITALIA N LIRA \ Y " " \ U J l W jV I ' JAFANE SE YEN 1 1 1 1 1 1 I , 1 1 1 1 wW 1J N DOLLAR - \.A - - i 1 i i -U.5._ - - i i i i I 1 1 1 1 1 3-MONTH FORWARD EXCHANGE RATES . ^ Friday AGAINST U.S. DOLLARS P., e n . p . . r\ POUND STERLING DISCOUNT - AGAINST POUND STERLING - LONDON SWISS FRANC AGAINST POUND STERLING - LONDON J 1963 M ltM J 191S H. 13 No. 1*66 October 7, 1964 III. Latest Figures Plotted In H. 13 Chart Series, 1964 Per cent per annum Chart 1 Upper panel (Friday, October 2 , except as noted) (Wednesday, September 30) Euro-$ deposit 4.44 U.S. certif. of deposit 3.88 Treasury bills: Lower panels (Friday, October 2 ) Treasury bills: U.S. 3. 54 U.K. 3. 76 Canada Finance Co. paper: A53 4.50 Germany 2.63 Canada 3.63 3.19 3.42 Euro-$ deposit (London) 4.44 U.S. 3.88 Canada 4.00 Japan: composite rate (Date; June 26 ) 7.979 Chart 6 4. 22 Bonds: Chart 2 U. S. govt. (Wed., September 30 • (Friday, October 2 y Canada 3.63 U.S. 3.53 Spread favor Canada +0. 10 Forward Canadian dollar -0. 20 Net incentive (Canada +) 0.10 Chart 3 (Friday, October 2 ) Treasury bills: U.S. U.K. Swiss 3-month deposits (Date; September 15) Hire-purchase paper, U.K. Treasury bills: Per cent per annum Chart 5 \ . U.K. 4.50 U.S. ,, 3.53 Spread favor U.K. 40.97 Forward pound -0.75 Net incentive (U.K. +) 40.22 4.19 U.K. war loan (Thurs., September 24 ) 6.18 German Fed. Railway (Fri., September 25 ) 6.35 Swiss Confederation (Fri., September 25 ) 4.07 Canadian govt. (Wed., September 30 ) 5.21 For description and sources of data see special annex to H. 13 Number 164, Digitized forSeptember FRASER 23, 1964. n
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