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OIVBION O F INTERNATIONAL FINANCE • O A R D OF # O V * * M O * a OF T H E F E O E * A L *E«EWV E SYSTEM September 5, 1961 No. 2 NTS ABROAD I. Japan II# Nine Charts on Financial Markets Abroad I. Japan: Money and Capital Markets During July Strong domestic pressures originating in high investment and consumption demand continued to have their impact on Japan's money and capital markets and on the balance of payments in July. The call loan market remained tight and the stock market turned downward. The $75 million drop in international reserves brought the total loss in reserves since the end of April to $198 million. On July 22 the Bank of Japan raised its basic discount rate from 6.570 to 6.935 per cent per annum. There were no significant signs of improvement in the trade balance and the inflow of foreign capital continued at reduced levels. Treasury operations, normally in deficit in July, were this year in surplus, thus creating additional pressure on money markets and pushing Bank of Japan credit to a new all-time high. Money Market. The money market continued to remain tight in July as treasury operations, usually in deficit in this month, registered a surplus of ?U9 billion. Foreign exchange operations withdrew an additional ¥28 billion from circulation and an expansion in the note issue of ¥16 billion placed further pressure on bank liquidity. Offsetting these pressures was an expansion of ¥95 billion in Bank of Japan loans and discounts. This raised the Bank's outstanding loans and discounts at the end of July to ¥883 billion, a new all-time high. Early in August the Bank of Japan purchased about ¥50 billion in government-guaranteed debentures from commercial banks in order to offset the large treasury surplus anticipated in August from income tax revenues and receipts from rice sales. The operation, which is designed to hold down commercial bank borrowing from the Bank of Japan, is to be completed in November, the banks having agreed to repurchase the debentures by the end of that month. Bond Market. Total new issues of corporate debentures in June were ¥93 billion, slightly higher than the ¥91 billion in May. Issues of bank debentures were ¥5U billion in June, up ¥h billion from May, but ¥3, billion below the level in the first quarter. Industrial debenture issues were off from ¥26 billion in May to ¥23 billion in June, a level sharply below the first quarter average of ¥77 billion when new bond investment trusts were introduced. Public corporate debenture issues of ¥15 billion in June were at about the same level as in May. NOT FOR PUBLICATION DECONTROLLED AFTER SIX MOUTHS NOT FOR PUBLICATION — 2 — Interest Rates. The average interest rate for all commercial banks on loans and discounts dropped to 7*89 per cent in May, continuing the downtrend which began last August. From July to August I960, the rate dropped from 8,22 to 8.20 per cent. Because of the increase in the Bank of Japan discount rate and commercial Bank rates late in July this year, the average interest rate will probably rise somewhat in August. Following the general lowering of interest rates in April, average yields on corporate debentures and local government bonds edged downward# From May to June, corporate debentures eased from 7.522 to 7*503 per cent and local government bonds from 7.357 to 7.35U per cent. Call money rates remained high in July. Late in the month, following the increase in the Bank of Japan discount rate, the maximum call rate agreed upon by the Bankers Federation was raised from 8.03 to 8.395 per cent. These agreed rates are frequently exceeded in both the Tokyo and Osaka call loan markets. During July rates quoted for call loans payable at the beginning of the next month in the Tokyo and Osaka, markets were 13• 9 and lU.6 per cent, respectively. Average Monthly Interest Rate on Bank Loans and Discounts March June September December 1958 1959 1960 1961 8.63 8.61 e.ia 8.27 8.18 8.08 8.06 8.11 8.21 8.22 8.1k 8.08 7.92 7.89 1/ 1/ May 1961. Bank Loans and Discounts. Bank loans and discounts rose at a faster rate in the second quarter than a year earlier. During this period the increase was h»0 per cent compared to 3.6 percent in the second quarter of I960. The proportion of loans utilized in financing capital equipment, which has been rising steadily for several years, registered a slight increase in the second quarter over the first. Bank deposits rose 1.8 per cent in the second quarter compared to a rise of 1.3 per cent a year earlier. While loan expansion was about the same in the second quarter as a year earlier, discounts of bills and investments in securities were up substantially. NOT FOR PUBLICATION NOT FOR PUBLICATION -3 - Commercial Banks: Quarterly changes in Deposits and Principal Assets (In billions of yen; — . M A I N A S S E T S Per Per cent Bills cent change Discounted change Securities Per cent change Deposits Per cent change 1959 I II III 17 +201 - 22 +276 +U75 3.1 -0.3 U.l 6.8 +1U3 - 83 +136 +207 3.6 2.0 3.2 U.7 + 21 + 86 +1U9 +169 1.2 U.9 8.1 8.5 + + + + 51 62 58 66 5.2 6.1 5.3 5.8 1960 I II III IV +2U9 + 96 +506 +607 3.U 1.3 6.5 7.3 +176 +167 +21* +3U7 3.8 3.5 U.9 6.7 + 5U + 87 +172 +185 2.5 3.9 7.5 7.5 + 78 + 75 + 35 +127 6.5 5.8 2.6 9.1 1961 I II +502 +169 5.7 1.8 +326 +206 5.9 3.5 + 18 +133 1.8 1.9 +103 +10U 6.8 6.U Loans Stock Market. After reaching a postwar peak on July 18, the stock market continued to decline throughout the rest of July and August# (See Chart 7») On August 31 the Dow Jones average reached ¥1,602, off one-eighth from the July 18 peak of 11,830. The decline in the market has been attributed largely to the unsatisfactory balance of payments situation and the tighter credit and interest rate policies introduced in July. June 28 July 5 12 19 26 Dow Jones Average of 225 Stocks Tokyo Stock Exchange ¥ 1,735 August 2 ¥ 1,76b I960 1,778 9 1,673 1,806 16 1,739 l,80li 23 1,685 1961 1,771 30 1,615 High Low ¥ ¥ 1,357 869 High Low ¥ ¥ 1,830 1,367 Foreign Trade. The seasonally adjusted trade deficit in July was $119 million compared with $133 in both May and June. While this is a slight improvement, the gap in the trade balance still remains large as indicated by the monthly averages of seasonally adjusted trade figures (in millions of dollars) detailed below. Trade Imports Balance Exports - 38 375 337 1960 U20 - 76 3 UU 1961 I U66 -115 351 II UU2 - 78 36U April U72 -133 339 May 1 U8U -133 351 June -119 July U77 358 NOT FOR PUBLICATION NOT FOR PUBLICATION - U - Foreign Exchange« The yen continued to remain under pressure in July and the first half of August reflecting the substantial deficits in Japan's balance of payments • During this period the spot selling rate of dollars for yen remained at the extreme official limit, the same as in May and June, Since May the yen has weakened in the forward market and this trend was continued in July with the forward discount of the yen against the dollar rising from 1.11 to 1,55 per cent per annum. Customer's T, T. Exchange Rates of Bank of Tokyo in Tokyo Yen-dollar spot middle rate 3-month forward middle rate 7 1U 21 28 361.10 361.10 361.10 361.10 362.20 362.10 362.1(0 362.50 1.22 1.16 l.Uli U 11 361.10 361.10 362.50 362.50 1.55 1.55 Date July August Forward discount in per cent per annum 1.55 Far Eastern Section. II, Nine Charts on Financial Markets Abroad Chart Chart Chart Chart Chart Chart Chart Chart 1 2 3 U 5 6 7 8 - Interest Arbitrage U.S./Canada Interest Arbitrage New York/London Interest Arbitrage New York/Frankfurt Interest Arbitrage Frankfurt/London Short-term Bond Yields Long-term Yields Industrial Stock Indices Major Currencies in Terms of Spot United States Dollar Chart 9 - 3-month Forward Rate—London Quotations NOT FOR PUBLICATION INTEREST ARBITRAGE, UNITED S T A T E S / C A N A D A Thursday figuie* T H R E E - M O N T H TREASURY BILL RATES I J A RATE DIFFERENTIAL A N D F O R W A R D C A N A D I A N DOLLAR S M I A D IN FAVOR OF CANADA + - RATE DIFFERENTIAL W I T H FORWARD EXCHANGE COVER NIT INCENTIVE IN F A V O I OF CANADA + INTEREST A R B 1 T R A G E , N E W Y O R K / F r i day LONDON figure* 3 - M O N T H TREASURY BILL RATES W RATE DIFFERENTIAL A N D 3 - M O N T H F O R W A R D STERLING SPREAD I N F A V O B OF LONDON T FORWARD EXCHANGE 1 T RATE DIFFERENTIAL W I T H COVER IN FAVOR Of NEW YORK 195 9 1960 1961 INTEREST ARBITRAGE, Friday figures 3-MONTH GERMAN TREASURY 3-MONTH GERMAN NEW BILL Y O R K / F R A N K F U R T RATES AND INTERBANK LOAN RATES P»> t i » l 3-MONTH INTERBANK L O A N RATE l/~V GERMAN 3 - M O N T H TREASURY BILLS U.S. TREASURY BILLS RATE D I F F E R E N T I A L AND FORWARD SPREAD I N F A V O R OF FRANKFURT: TREASURY ' DEUTSCHE MARK I i INTERBANK f L O A N RATE - v F O R W A R D RATE DISCOUNT C—J RATE DIFFERENTIAL WITH FORWARD EXCHANGE COVER NET I N C E N T I V E *. IN FAVOR OF FRANKFURT ( 4 0 I N F A V O R OF NEW YORK ( - ) Special forward dollar rale ^eilhei t) ovoiloble to German commercial bonks. p»r o n n u m % I N T BREST A KBIT RAGE, FRANKFU RT/L O N D O N Friday (i$ 3-AAONTH AND TREASURY LENDING BILLS RATES UNITED KINGDOM TREASURY BILLS RATE DIFFERENTIAL AND FORWARD STERLING SPREAD IN FAVOR OF UNITED KINGDOM BILLS OVER GERMAN TREASURY BILLS GERMAN \ INTERBANK LOAN RATE 3-MONTH FORWARD STIRLING PREMIUM+ O f - DISCOUNT RATE - DIFFERENTIAL WITH FORWARD NET" INCENTIVE OF UNITED'KINGDOM BILLS OVER: GERMMLiHIERBANK LOAN RATE v " EXCHANGE COVER -&! 3-monlh Ireaiury bill 3 month Japan (3-month interbank deposit rale) and Switzerland (3-month depoiil rale) L O N G - T E R M B O N D YIELDS I N D j J S T B I A L STOCK I N DICES Jopon: Index of oil liocki .Iroded on Tokyo exthongi YVM A J O R C U R R E N C I E S I N TERMS OP THE SPOT U . S. D O L L A R ' V i U.K. STIBUHG ITALIAN LIRA I960 j A. CINT V* 3 - M O N T H FORWARD RATES - L O N D O N Q U O T A T I O N S / SWISS FBANC iNA V PREMIUM + M J D
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