RETUN TO RE S TRICTED Report No. FE-4a ONE WEEK This report was prepared for use within the Bank. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT MEMORANDUM ON RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS IN JAPAN January 15, 1958 Department of Operations Far East CURRENCY CONVERSION $1.00 Y 360 Y 1 $ 0.00277778 Y 1 million $ 2,777.78 Y 1 billion $ 2.78 million 0 RECENT ECONG1IC AND FINANCIAL DEVELOP1MENTS IN JAPAN SUMNARY AND CONCLUSIONS i. This memorandum reviews the developments of the Japanese economy since last spring when Japan was in the midst of a balance of payments crisis and the Government adopted a series of corrective fiscal and monetary measures. Its conclusions are: (a) that the loss of foreign exchange has been halted; and (b) that inflationary pressures have subsided, But it also points out that the level at which international payments and receipts have been balanced may not be high enough to assure a level of imports sufficient to support the continued expansion of the economy. The Japanese authorities appear to be fully aware of the need of raising export earnings further and determined to continue policies to achieve this objective. The developments of the last eight months leave unchanged the conclusion of the last report that Japan can prudently contract a sizeable volume of additional foreign debt. RECENT ECONOMIC AND FINANCIAL DEVELOPMENITS IN JAPAN Introduction 1. The last economic report on Japan (FE-2a, dated July 25, 1957) reviewed the progress of the Japanese economy from 1952 to the spring of 1957 and assessed the outlook for the next few years. When the report was prepared Japan was in the midst of a balance of payments crisis which developed in early 1957. The difficulties resulted from a rapid increase in imports at a time when exports were tending to level off. The increase in imports was caused by the investment boom which had started in 1956 and the need to replenish inventories of raw materials depleted during the period of rapidly rising production in the last two years. Exports were affected mainly by an increase in domestic demand and rising prices, particularly for steel, machinery and other investment goods. As a result of these developments Japants gross gold and foreign exchange reserves fell from "?,646 million at the end of 1956 to 1 ,150 million in mid-1997. 2. The purpose of this paper is to review developments since last spring and to determine to what extent they affect the appraisal of future trends presented in the last report. Corrective Measures 3. In order to curb total demand, but particularly to reduce imports and encourage exports, a comprehensive series of monetary, fiscal and other measures has been put into effect On M'ay 8, the Bank of Japan loan and discount rates, except those applicable to export bills, were increased by 0.73% to a level ranging between 8.4% and 9.1% for loans and discounts wiThin each bank'suquota", and up to 10.2% for transactions in excess of the quota. Following this action the legal rates for commercial bank lending were also increased by 0.73% and the banks were asked to restrict sharply their volume of new lending. Lending rates of long-term credit institutions were raised (by 0.3% to 0.7%) as well as rates on corporate debentures and local govern- ment bonds. Interest rates on time deposits were increased in order to attract more savings deposits. Moreover, in order to reduce the liquidity of the banking system, the Government withdrew approximately one-half of the U.S. dollar deposits and three-fourths of the sterling deposits which it keeps with eleven foreign exchange banks. 4. In June the Government decided to change its fiscal operations in order to achieve a cash surplus of at least 100 billion in the current fiscal year (ending March 31, 1958) instead of incurring a deficit of Y33 billion as originally envisaged. More recently, it has been estimated that the government cash surplus may substantially exceed Y100 billion. The change-over from a deficit to a large surplus is to be accomplished by: (a) postponement of government loans of Y58 billion to private industry; 1/A list of the initial measures taken to restore stability, in chronological order, is shown in Appendix I. - 2 - (b) postponement of expenditures of Y10 billion on public works and repair of government offices; (c) the resale of corporate debentures of Y70 billion previously purchased from commercial banks by the Trust Fund Bureau of the Ministry of Finance; and (d) an increase in tax revenues above the level of the budget estimates. 5. Private investors were requested to postpone part of their plant and equipment investment planned for the current fiscal year. The over-all cut requested amounted to about 15%, or 260 billion, of total planned investment of IR, 740 billion. Among the more important industries, deferments were asked in the amount of 12% for steel, 11% for power, 10% for synthetic chemicals, and 10, for the shipbuilding industry. 6. In addition, a number of steps have been taken to affect directly the volume of imports and exports., The authority to use starling import credits ("usance credits") was substantially curtailed, and the period for which these credits could be used was cut from 120 days to 90 days. The use of ste1q.ng import credits was thus put on a basis similar to that for dollar import credits. Shortly thereafter the Japanese foreign exchange banks raised their interest charges on dollar usance bills from 5.5% to 5.7% and on sterliuig usance bills from 6.05 to 6.25,%. Another important measure was an increase in the amount of deposit which importers are required to make w-ith a, exchange bank when applying for an import license. Previously the deposit re6uirement ranged from li to 5o of the invoice value of the imported goods; the new rates are 5, for essential raw materials and 25% to 35% for most other goods. In order to encourage exports, the Bank of Japan reduced its discount rate on export advance bills from 6.21% to 5.84%. 7. Following the above steps the Government announced a curtailment in the foreign exchange budget. Foreign exchange payments in the second half of the current fiscal year are not to be allowed to exceed !1,d865 million, the amount of estimated receipts for the same period. This sum is $448 million less than payments in the first half of the current fiscal year and about the same as in the second half of last year. Developments since May 8. Five months after the tight money policy had been announced, the money supply had declined by 1170 billion, or 9%, and the wholesale price index of all commodities had fallen 2%. Seven months after the announcement, the decline in international reserves had been halted and a payments surplus of $5 million had been recorded. These developments indicate the speed and extent of the adjustment of the Japanese economy to the adverse movements in its balance of payments. It would be an overstatement, however, to attribute them solely to monetary and fiscal measures, although it is clear that monetary policy has been an important factor contributing to the deflationary movements. 9. When the tight money policy was announced in May, the money market already was relatively tight due to the rapid expansion of credit associated with the investment boom and the rebuilding of inventories during fiscal 1956. Moreover, some industries had experienced difficulties in maintain- ing their sales volume, and consequently were in a rather uneasy position even before the new policies took effect. Thus in the spring of 1957 pro- duction in the cotton textile industry was at a high level and tended to out- strip domestic and export demand. The domestic steel market also was soften- ing as a result of large arrivals of imported steel, which had been encour- aged by the Government to counteract the shortages and sharp price increases during the latter part of 1956. Consequently, domestic steel prices had al- ready turned downward when the tight money policy was introduced. 10. Credit from banks other than the Bank of Japan continued to increase in the months following the introduction of the tight money policy, although the rate of increase was considerably below that of the previous year. Dur- ing the five months May throu,7h September 1957, loans and discounts increased by I 393 billion, which was about 20% less than the inc-ease in the correspond- iig period of 1956 (Table 2). Loans and discounts of the Bank of Japan in- creased by Y 290 billion during May-September, compared with an increase of only Y 73 billion in the same period of last year. The high volume cf Bank of Jspan credit operations in the current year reflects the tight position in which the comirercial bcnks found themselves when the new policies were adopted. Indirectly, it is also a reflection of the large level of inventor- ies which had accumulated in the hands of oroducers and dealers and which had made them temporarily illiquid and forced the banks to "carry" them, at leas(" for the time being. During May-September 1956, on the other hand, when tfl investment boom was just beginning, the commercial banks were in a liquid position and much less dependent on borrowings from the Bank of Japan. More- over, in 1956, the balance of payments surplus added to the liquidity of the banking system. 11. The fiscal operations of the Government also have contributed to the monetary stringency. Between May and September 1957, the Treasury's cash transactions with the public (excluding Foreign Exchange Fund transactions) resulted in a surplus of -i 147 billion, as compared with Y 97 billion in the corresponding period of 1956 (Table 3). In addition, the foreign payments deficit, financed in part by a loss of exchange reserves and in part by a drawing of $125 million on the IMF and by additional short-term credits of $115 million from the Export-Import Bank, totalled Y 157 billion between May and September and caused a reduction in money supply in the hands of the public of approximately the same amount. The Treasury surplus together with the foreign exchange deficit and additions to time and savings deposits exceeded the increase in bank credit. It was this excess which caused the 9% decline in the money supply. 12. The decrease in the money supply (and, conversely, the increase in bank credit) was reflected in a sharp increase in inventories. Shipments of goods by manufacturers increased slightly to a new peak in iday and then de- clined between June and August. Industrial production, on the other hand, -4 - kept on rising until July, with the result that producers, inventories of finished goods rose by about one-third from lay through August. Wholesale prices began to fall in May, and by August the wholesale price index of all commodities was 2.4% below the April level; it rose again in September and October, but only by 0.6%. Among the commodity groups hardest hit were metals and machinery which fell by 6.7%., and textiles which declined 4.5% in the six months from May to October. 13. Industrial production did not recede until August when production cut- backs amounting to 4.2% were made. In October the production index was 10% above October 1956, while in the first six months of 1957 the index averaged about 20% above the level in the same months of last year, 14. There are indications that private investment plans for the current year have been reduced by at least the 15% requested by the Government. One press report mentions a deferment of tmore than 30% of private investment in plant." Considerable cutbacks seem to be indicated by data on new machinery orders. In the third quarter of calendar 1957 orders for machinery were 27% smaller than in the first quarter. The sharpest cuts occurred in orders for industrial machinery and machine tools, which declined by 43%. However, the level of private domestic machinery orders was still above that of last year. Moreover, during July the Government approved the 13th post-war shipbuilding program which authorized 33 ship owners and operators to place orders for 46 ships totalling 415,000 gross tons. As a result, orders for new ships inc"eased considerably over early months. 15. The balance of payments situation has improved substantially in the last few months. International payments deficits totalled 188 million in the first four calendar months, exceeded 300 million between May and July, but declined to 869 million in August, and to i55 million in Septe:foer. In October and November, there appeared surpluses of ,'25 million and P20 million respectively. There was also a net decline in the amount of short-term "usancenl credits. The value of import letters of credit (which lead the flow of imports by several weeks) receded sharply from a peak of $321 million in May to $182 million in September. (It rose, however, in October, to $226 million). Export letters of credit, on the other hand, which had averaged over $i200 million in the first three months of the year, continued at that level in the second and third quarters. However, the destination of exports has changed; shipments to clearing account countries have declined, while exports to dollar and sterling countries have increased. This change tends to improve the liquidity of Japan's foreign exchange reserves. Short-term Prospects 16. The developments of the last six months have borne out the view express- ed in the last report on the Japanese economy that the inflationary pressures and the imbalance in the country's international accounts will be brought under control and that "serious inflation will be avoided." But it is still too early to say whether the tight money policy can be maintained for a pro- longed period. So far, the business and financial communities appear to have taken the credit restraints, the piling up of inventories, and the price de- clines in their stride -- largely because their difficulties have not been particularly great. In the last two years, the entire economy has worked under conditions of "forced draft", first because of a buoyant export demand and more recently because of booming private investment which resulted in high levels of employment, income and demand throughout the economy. Profits were abnormally high and not only caused what Japanese documents tellingly refer to as "zeal for investment" but also made it possible to finance a large proportion of investment expenditures from company funds. 17. The developments of the recent months have resulted in an accumulation of inventories, and have halted the expansion of production. But, as pointed out before, indications are that the level of investment (which amounted in the last fiscal year to 32%0 of the gross national product) still is close to, or even exceeds that of last year, and the deferment of 15% of industrial investment which the Government proposed may do no more than eliminate the surfeit of uncertain projects conceived under boom conditions. However, the demands for investment credits are likely to become more urgent, since more and more corporations are using up their own funds -- on investment expenditures and inventories - while earnings ,are being reduced by falling prices. Thus, the real test of the Government's ability to keep money tight is still to come. 18. There are several technical reasons which are likely to make the position of the Japanese authorities more difficult and throw a heavier burden than hitherto on monetary controls. In the first place, in the third quarter of the fiscal year (October to December) the Government usually incurs a substantial cash deficit because of large rice purchases. In October, the cash deficit came to ib 48 billion. Since the new rice crop is estimated to be the second largest on record, the cash deficit is likely to exceed substantially the planned re-sale of corporate debentures to commercial banks (cfparagraph 4 above). The fiscal situation is, however, expected to improve in the last fiscal quarter (January to March) since in that period the Government usually realizes a sizeable cash surplus resulting from an inflow of tax receipts and seasonally smaller disbursements. 19. Secondly, the deflationary effects of a balance of payments deficit will have to disappear in the second half of the fiscal year if the Government's foreign exchange budget is to be fulfilled. If for some unforeseen reason the exchange budget is exceeded and the surpluses of October and November continue the money supply would be increased. The combined result of the fiscal opera- tions and of the expected balance of payments developments will be an easing of the monetary situation unless the Bank of Japan not only halts its aggregate rediscount and loan operations but actually forces the banking system to repay part of its debts. This is obviously a more difficult task than merely to slow down the credit expansion and to rely on fiscal operations and the balance of payments deficit to curtail the money supply -- as the central bank has done so far, 20. Fortunately, the Japanese authorities appear to be aware that the difficult process of deflation has not been completed and that further efforts will be necessary to bring aggregate demand in line with the economy's productive capacity and provide for a wider safety margin in its -6- international reserves. On several occasions the Government has assured the public that it will not relax the policies of restraint. It also has published detailed outlines of the policies which it proposes to follow for the rest of the current fiscal year and for the fiscal year 1958. In the autumn budget speech (before the extraordinary session of the Diet) the inister of Finance stated: "The immediate need of economic policy is to control domes- tic demand both for investment and consumption, in order to export the surplus thus obtained .... The Government will con- tinue to promote savings and to maintain the basic principle of a tight money policy...." A Cabinet meeting approved on August 30 a statement on "The basic atti- tude concerning the management of the national economy in the fiscal year 1958" which lists, among others, the following objectives: "l. The principle objective of the management of the national economy in the fiscal year 1958 shall be to improve the inter- national balance Of payments by a great margin, thus to estab- lish conditions /conducive/ to the long-range development of the economy. Therefore economic development shall be rather restrained for the time being and the main emphasis shall be on steady economic growth. "2. Since the increase of exports is indispensable for the improvement of the international payments situation and sound economic growth, various policy measures shall focus on the promotion of exports. "3. In order to increase exports, the prices of commodities which are high by international comparison shall be corrected and the prices of export commodities shall be stabilized at appropriate levels. "4. ....The scale of fiscal expenditures, both central and local, shall be restricted so that any stimulating effects on business may be avoided. "5. In order to avoid excessive investment, private invest- ment plans shall be carefully screened and coordinated with the cooperation of business and banking circles...." 21. The Government has published some estiaates of the quantitative implications of its policies. The exchange budget previously referred to has recently been revised to take account of the developments during the first half of the fiscal year. - 7 - Foreign Exchange Balance, Fiscal Years 1956-57 (Millions of dollars) Fv, 1956 FY 1957 Apr- Oct 56- Apr- Oct 57- Sep 56 Mar 57 Total Sep 57 Mar 58 Total Receipts (Estimate) (Estimate) Merchandise exports 1217 1278 2495 1369 160 2819 Special dollar receipts 298 287 585 289 270 559 Invisibles and capital receipts 115 142 257 161 145 306 Total 1630 1707 3337 1819 1865 368 Payments Merchandise imports 1251 1531 2782 2006 1590 3596 Invisibles and capital payments 247 269 516 307 275 582 Total 1498 1800 3298 2313 1865 4178 Balance /132 - 93 , 39 -494 -- -494 INF drawing -- -- -- /125 -- /125 Adjusted balance /132 - 93 / 39 -369 -- -369 22. The "balance of payments deficit for the first half of fiscal 1957 is not far above the original estimate of the Japanese authorities of *h75 million. In iew of the size of the deficits in lay and June -- 97 million and j"11 million, respectively -- it must be considered as an accomplishment that the six-months' deficit was kept so close to the estimate and that surpluses were attained in October and November. Nevertheless, the adjustment problem is not yet solved since the projection for the period October to March implies a further expansion of exports, and a substantial compression of imports. In order to reach the export target of j1,hS0 million in the second half of the fiscal year, exports will have to average '2L.2 million per month, an amount which has so far been reached only twice. 23. The main burden of the adjustment, however, falls on the import side. During the current six months, imports will have to decline by $416 million, or 21, from a monthly average of 4334 million, to an average of ''265 million. The projected total of .1,590 million still would be somewhat larger than the total of the corresponding period in 1956/57. But in that period the volume of industrial production was 14% smaller than it is now and exports also were 12% below the current target figure. 24. In this connection the Japanese authorities have emphasized the fact that in the last few months inventories of imported raw materials have been at an all time high, exceeding the level prevailing at the same time last year by almost one-half. They have concluded that a curtailment of raw material imports to the extent required to balance the international accounts is possible. This argument seems to overlook, however, that in 1956 - 8 - the stockpiles of raw materials were depleted, and that recently the consumption of imported raw materials runs at a rate 141S above last year. In Septekberj the "excess" of inventories of imported raw materials (as measured by the ratio of the index of the stockpile of imported raw materials to the consumption of raw material imports) amounted to 11%. But the index measuring the "dependence upon imported raw materials" which had been rising steadily during the last two years, also was 7.5% higher than in the base period (1953). Therefore, unless a major change in the composition of total production takes place, a further curtailment of imports of raw materials can be accomplished only if industrial production declines more than so far, and domestic demand for investment and consumption is trimmed further to permit an expansion of exports. Alternatively, inventories of imported raw materials will be depleted and will have to be replenished next year. 25. Thus, it is by no means certain that the international accounts of the Japanese economy will be balanced before the end of the fiscal year at a level that can be maintained. The Outlook for 1958 26. Various government agencies have forecast that at the end of the fiscal year 1957 the volume of industrial production will exceed that at the end of last year by 8%, and that real national income will be 5% higher than the year before. By now, these forecasts seem overly conservative; more recent estimates indicate that industrial output may rise in fiscal 1957 by almost 10%, and real income by about 6%. For the fiscal year 1958, the Government envisages an increase of industrial production of 4% only, corresponding to a real income growth of 3%. This curtailment in the growth of output and income is to be accomplished by a continuation of monetary and fiscal controls. The guidelines for the preparation of the 1958 budget provide for the maintenance of government expenditures at the present level (approximately Yr 1,100 billion). Revenues, on the other hand, are estimated to increase in line with the growth of the national product by Y80 billion. Originally, the Government planned to use this surplus, together with the cash surplus from earlier years to retire Goveirmait borrowings and to set up a special contingency fund. However, more recently it has been reported that the Minister of Finance has agreed to a proposal by political leaders of the majority party, to reduce the corporate income tax (and some minor taxes). The revenue loss of this measure, which has not yet been officially approved, has been estimated at '20 billion. The fiscal operation of local governments which have been borrowing substantial amounts in recent years, are to be "normalized," i.e., their expenditures are to be curtailed. 27. According to the government projections, the fiscal and monetary policies should make it possible to produce a balance of payments surplus of 1200 million which is to be used in part to retire the special short-term credit from the Export-Import Bank. The shift from a deficit of over "h00 million in fiscal 1957 to a surplus of 200 million in fiscal 1958 is to be accomplished by an increase in exports of at least 300 million, and a decrease in imports of the same order of magnitude. In view of what has been said before about the difficulties of curtailing imports without seriously interfering with industrial production, this looks like a rather formidable task. If, however, the projected levels of exports and imports are compared with those forecast for the second half of the current fiscal year, it appears that aside from the reduction in imports, which is under way but by no means completed, the main problem will be to bring about an increase in exports. ) -9 - Foreign Exchange Balance Estimates, Fiscal Years 1957 and 1958 (millions of dollars) FY 1957 FY 1957 FY 1958 (Apr. 57- (Oct. 57-har. 58, (Apr. Mar. 58) at annual rates) Mar. 59) Receipts Merchandise exports 2819 2900 3120 Other 865 830 830 Total 3684 3730 3950 Payments Merchandise imports 3596 3180 3200 Other 582 550 550 Total 4178 3730 3750 Balance - 494 -- / 200 28. The contemplated increases in exports, though substantial, are sufficiently small to be considered feasible; they would amount to only 1% of the actual rate of exports prevailing in the first half of the current fiscal year. Fortunately, the crucial importance of expanding exports -- becaue a curtailment of imports beyond that contemplated would be incompatible with maintaining and gradually expanding industrial production -- has been recognized by the Japanese authorities who have indicated that in the irmmediate future their policies will be determined by their success in expanding exports. 29. The conclusion which emerges is that the re-establishment of balance of payments equilibrium will depend on the ability of the Japanese Government to continue their policies of tight monetary and fiscal controls, in the face of strains which are likely to mount in the next few months. Although the policies appear to have been remarkably successful so far, it is still uncertain whether the ambitious goal of attaining a balance of payments surplus in the course of the next fiscal year can be reached. In recent weeks demands for tax reductions, in excess of those already informally agreed on, have been raised, both by the opposition and the government majority parties. Moreover, proposals have been made to use -43 billion of surplus funds for increased expenditures on road construction and for higher pension payments. The Minister of Finance has countered these demands by suggesting that even without any tax reduction the balance of payments targets for the fiscal year 1958 may not be reached because the export projections may have to be revised downward while imports may have to be increased. 30. Because of these developments, it is doubtful whether the objectives of the tight money policy can be attained within the short time span which the Government has allowed itself in its policy formulation. It is certain, -l10 however, that the Government still has the aim of achieving, in as short a time as is politically feasible, a stable balance of payments basis for the continued growth of the economy. Long-run Prospects and Creditworthiness 314. Since the last report on the economy of Japan was prepared, the Japanese authorities have revised their long-range plans to take account of the rapid growth of output and income in 1956 and the current period of restraint. The "target" figures for the fiscal year 1962 have been left unchanged but since the original 1956 basis for the projections of output, income and employment has been exceeded by actual development, the annual rates of growth which the Bank report had considered as "excessively sanguine" have been decreased from 6.5/ to 5.8% for the gross national product and corresponding downward adjustments have been made for other projections. The new figures, although probably still rather high, are now more in line with the long-range forecast of the Bank report which considered an annual growth rate of 5% for the gross national product as reasonable, on the assumption that exports and imports would also grow at that rate. 32. There has been no significant change in Japan's total external long- term indebtedness in the last six months. At the end of September 1957, total long-term debts amounted to the equivalent of '1,351 million, of which ?525 million was payable in foreign exchange and the remainder in goods and yen. (For details, see Tables 4 and 5, and report FE-2a, paragraphs 39-41). Short-term indebtedness increased by '$.1 million as a result of the borrow- ings from the Export-Import Bank; this debt is to be repaid in 1958. Japants foreign obligations were also raised by the 125 million drawing on the IMF. 33. The developments of the last eight months and the outlook for 1958 do not affect the conclusion of the last report that "Japan still could prudently contract a sizeable volume of new debt to help relieve the strain which additional essential investment in certain basic facilities and industries is likely to impose on Japan's resources over the next few years." APPENDIX I Measures Taken to Restore Economic Stability May_1957 to July 1957 May 8 - Bank of Japan discount rate increased by 0.73% from 7.665% to 8.395%. May 8 - Government withdraws approximately one-half of U.S. dollar deposits and three-fourths of sterling deposits which it keeps with 11 Japanese foreign exchange banks. May 13 - Maximum legal rates for commnercial bank lending increased by 0.73% (same as B.0.J. discount rate). Pay 14 - Sterling import usance bills facilities restricted: various items (e.g. sugar, soybeans, fats and oils, etc.) excluded and term of bills reduced from 4 months to 3 months (effect was to place sterling usance facilities on same basis as dollar usance facilities). May 25 - Exchange banks raise interest rates on dollar usance bills from 5.5% to 5.75% and on sterling usance bills from 6% to 6.25%. June 4 - Percentage of invoice value which importer is required to deposit with exchange bank when applying for import license raised: old rates ranging from 1% to 5% replaced by new rates of 5% for essential raw materials and 25-35% for most other goods. June 19 - Bank of Japan discount rates on export advance bills reduced from 6.21% to 5.84%. June - Arrangements made for $125 million IMF drawing, $115 million short-term Eximbank credits. June - Government decides to adjust budget policy to achieve cash surplus of 4 100 billion in current fiscal year (ending March 31, 1958) instead of cash deficit of Y 35 billion originally envisaged. July 1 - Interest rates on time deposits increased: (a) 4.0% to 4.3%, on 3 months deposits (b) 5.0% to 5.5% on 6 months deposits July 3 - Private enterprises requested to reduce equipment investment by 15% below the 9 1,740 billion originally planned for the current fiscal year. July - Lending rates of long-term credit banks and rates on deben- tures of private and public corporations and on local government bonds raised. Table 1 Comparative Statistics, 1956-1957 Unit Period of Comparison 1956 1957 % Change Monetary and Balance of Payments Data Money supply Y billion End of September 1711 1669 $ 1.5 Change % End of March-End of September $10.6 -10.2 -- Loans and discounts, Bank of Japan Y billion End of October 75.6 534.3 /707 Loans and discounts, other banks Y- billion End of October 3720 4721 /26.0 Change % End of March-End of October 12.4 9.8 - Gold & foreign exchange holdings, total 5 million End of October 1581 1130* -28.5 Change $ million End of March-End of October $ 23 -296 -- Change % End of harch-End of October / 1.5 -20.8 -- Export letters of credit $ million April-October 1273 1438 $13.0 t " $ million October 191 206 / 7.9 Import letters of credit 8 million April-October 1493 1655 $10.9 nt $ million October 262 226 -13.7 Production, Employment and Prices Industrial Production 1934-36=100 October 226.7 247.5 /10.9 Change % April-October /7.3 -1.2 -- Producers' Shipments 1953=100 September 146.7 159.8 $ 8.9 Change % April-September / 11.2 - 0.7 -- Producers' inventories of finished goods 1953=100 September 111.7 173.1 $ 55.0 Change % April-September $ 5.3 A38.9 -- Inventories of raw materials 1953-100 September 130.1 178.4 $ 36.3 Change % April-September $ 26.3 /12.9 -- Employment in manufacturing 1951=100 September 118.1 125.9 L 7.6 Change % April-September A 1.5 - 0.8 -- Unemployed 1000 September 550 480 - 12.8 Wholesale prices 1952=100 October 104.5 104.6 0.1 Change % April-October $ 4.2 - 1.8 -- Consumer prices 1951=100 September 118.5 123.5 4 4.2 Change % April-SEtFber - 0.6 0.8 - * Including IMF drawing of $125 million. Table 2 Bank Credit (Billion of yn) Bank of Japan Other Banks Loans and Discounts Loans and Discounts End of Eonth 1956 1957 1956 1957 kmount Change Amount Change Amount Change Amount Change March 27.3 - 276.4 - 3258.4 - 4301.3 - April 18.4 -8.9 272.7 -3.7 3239.3 -19.1 4327.8 /26.5 May 23.0 4.6 324.3 /51.6 3290.2 /50.9 4390.5 /62.7 June 62.9 /39.9 475.5 4151.2 3406.2 /116.0 14469.5 479.0 July 62.6 -0.3 483.9 /8.4 3482.3 /76.1 4505.5 436.0 August 92.7 /30.1 521.2 /37.3 3568.6 /86.3 4574.5 469.0 September 91.3 -1.4 562.9 /1.7 3719.8 /151.2 4720.9 146.14 October 75.6 -15.7 534.3 -28.6 Source: Bank of Japan, Econornic Statistics of Japan, 1956, and Economic Statistics Lonthly. Table3 Treasury TaLE * Treasury Sur2luses (/) or Deficits(- in Transactions with the Public (Billions of Yen) 1956 1957 Excluding Including Excluding Including Foreign Exchange Foreign Exchange Foreign Exchange Foreign Exchange Fund Fund Fund April -41.5 -55.8 -51.9 -20.5 May /44.0 /45.4 /46.0 /93.6 June /16.5 /19.8 /61.1 /104.6 July -10.1 - 0.4 -13.4 /17.1 August /39.2 /39.8 /25.8 /46.7 September / 7.3 - 5.1 /27.3 /37.4 October -32.4 -33.3 -48.3 -52.9 Source: Economic Planning Agency, Japanese Economic Indicators; Bank of Japan, Economic Statistics Monthlv. Table L: JAPAN - EXTERMAL PUBLIC DEBT OUTSTANDING /l (Amounts expressed in millions of U.S. dollar equivalents) Page 1 Item Amount % f EXTERNAL PUBLIC DEBT OUTSTANDING MAY 31, 1957 1,39.2 /2 100.0 NATIONAL AND GOVERNMENT GUARANTEED DEBT 1354.2 100.0 Disbursed and still outstanding 1,256.2 92.8 Undisbursed 98.0 7.2 U.S. DOLLARS 279.8 20.7 Disbursed and still outstanding 198.4 14.7 Undisbursed 81.4 6.0 Publicly-issued bonds 87.2 6.4 Privately-placed debt 4.9 Disbursed and still outstanding 57-9 Undisbursed 3,9 0.7 Loans held by IBRD 63.4 4.7 Disbursed and still outstanding 4175 3.1 Undisbursed 21.9 1.6 Export-Import Bank loans 62 ,4 4.6 Disbursed and still outstanding 118 0.9 Undisbursed 50,6 3.7 POUNDS STERLING 242-8 17.9 Publicly-issued bonds 228.5 16.9 Loans held by IPRD 0.2 /3 Reparations 14.1 1.0 FRE-CH FRANCS 2.2 0.2 Publicly-issued bonds 2.1 0.2 Loans held by IBRD 0.1 /3 SWISS FRANCS (Loans held by IBRD) 2.9 0.2 AUSTRALIAN POUNDS (Loans held by IBRD) 0.3 /3 DEUTSCHE MARKS (Loans held by IBRD) // ITALIAN LIRE (Loans held by IERD) 0.1 /3 DEBT PAYABLE IN GOODS (Reparations) 717.1 53.0 DEBT PAYABLE IN DCLLARS OR YEN (U.S.government loans) 108,9 8.0 Disbursed and still outstanding 92.3 6.8 Undisbursed 16.6 1.2 DEBT OF POLITICAL SUBDIVISIONS - FRENCH FRANCS (Publicly-issued bonds) /5 - See footnotes at end of table Table 4: JAPAIA - EXTTIRAL ?-BLIC DEBT OUTSTANDING /1 (CONT.) (Amounts expressed in millions of U.S. dollar equivalents) Page 2 Item Amount % MAJOR TEPORTED ADDITIONS JUE 1 - SEPTEMEER 30, 1957 21.1 100.0 U.S. DOLLARS 21.1 100.0 Privately-placed debt 2.7 12.9 Loans held by IBRD 6.3 29.8 Export-Import Bank loans 12.1 57.3 DEDUCT: Estimated amortization payments June 1 - Sept.30,1957_ 24.4 ADJUSTED TOTAL L)5009 /1 Includes national debt, government guarantec! debt, and debt of political sub- divisions outstanding Mv1ay 31, 1957 with major reported additions through September 30, 1957. L2 Excludes U.S. Export-Import Bank cotton credits which turn over each year and short-term (9 months and 12 months) credits amounting to $115 million granted to Japan on June 28, 1957 by the Export-Import Bank for the purchase of various U.S. agricultural commodities, including cotton. The IMF drawing of $125 million is also excluded. /3 Less than 0.005. A4 Less than $500,000. Z5 No dollar equivalent is shown here since it is not known at what amount the settlement will be made. This debt has not been serviced since 1928. The amount outstanding is F 173 million. Source: IBRD, Economic Staff. Table 5: JAPAi - ETERNi N DEBT SERVICE Ll (In thousands of U.S. dollar equivalents) Payable in foreign currencies Payble in goods Fayable in yen Grand total Total out- Service due in Total out- Total out- Total out- ear standing U.S. founds Swiss Other Total standing Service standing Service standing Service January 1 dollars sterling francs January 1 January 1 January 1 1954 499,386 14,135 27,059 - - 41,194 - - - - 499,386 41,194 1955 484,240 13,271 51,087 - - 64,358 200,000 - - - 684,240 64,358 1956 450,565 24,708 36,852 - - 61,560 200,000 14,374 59,500 - 710,065 75,934 1957 503,978/ 22,885 27,451 106 696 51,138 717,130/2 45,000 108,850 /2 - 1,329,958/2 96,138 1958 508,122 24,145 32,542 183 235 57,105 685,000 45,000 108,850 1,190 1,301,972 103,295 1959 470.323 34,497 27,145 199 261 62,102 640,000 45,000 108,850 3,412 1,219,173 110,514 1960 429,038 35,939 24,103 364 306 60,712 595,000 45,000 108,805 4,494 1,132,843 110,206 1961 388,332 35,003 22,054 470 321 57,848 550,000 45,000 108,662 4,601 1,046,994 107,449 1962 349,467 31,602 81,885 470 321 114,278 505,000 45,000 108,405 4,709 962,872 163,987 1963 251,27.5 45,966 23,385 470 921 75,142 46o,ooo 45,000 1C8,029 4,813 819,304 124,955 1964 189,550 29,756 9,606 170 321 40, 53 415,000 45,000 107,533 4,9i5 712,083 90,o68 1965 15B,852 17,006 8,104 470 321 25,901 370,000 145,000 106,913 5,020 635,765 75,921 1966 141,033 16,066 7,938 470 321 24,795 325,000 25,000 106,163 5,119 572,196 54,914 l Includes service on all debts listed in Tabie 4, except for two Lxport-Import 1ank loans of 24.2 million to Japan Airlines, /2 The amount outstanding shown for 1957 is as of 1"y 31, 1957; payments zhoT-'n are for the calendar year. Source: IBRD, Economic Staff Noveiber 27, 1957