GENERAL HEADQUARTERS SUPREME COMMANDER FOR THE ALLIED POWERS CIVIL PROPERTY CUSTODIAN External Assets Division
JAPANESE EXTERNAL ASSETS AS OF AUGUST 1945
INTRODUCTION
1. Definition of Terms:
a. The term, "Japanese external assets" as used in this report, means property owned by agencies of the Japanese Government, corporations, financial institutions and Japanese individuals which is located outside of Japan.
(1) Such assets include:
(a) Tangible assets, namely immovable and movable property, both real and personal, including gold and silver coin and bullion.
(b) Intangible assets, including but not limited to bank deposits and reserves, accounts and notes receivable, stocks, bonds and debentures, instruments of payment, copyrights, patents, foreign currencies, bonds, insurance policies, investments in partnerships and subsidiaries, leaseholds, and rights to extract natural resources.
b. More specifically, the definitions expressed in the following memoranda to the Japanese Governmentapply to this report:
(1) SCAPIN45, 22 September 1945 1/
(2) SCAPIN96, 6 October 1945, definition 6 2/
2. Source of Data:
a. The current estimate of Japanese external assets is based on a compilation of all reports of Japanese external assets received in compliance with:
(1) Memorandum to the Japanese Government, file AG 123 (6 Oct 45)ESS, SCAPIN96, 6 October 1945, subject, "Reports of Foreign Exchange Assets and related matters," from General Headquarters, Supreme Commander for the Allied Powers2/ resulting in
1/ See Appendix d, Vol. III, page 170
2/ See Appendix b, Vol. III, page 165 Introduction Source of Data (Cont'd)
(2) Orainance No.95, issued 3 November 1945 by the Japanese Government, ministry of Finance1/, prescribing the reporting of all Japanese external assets.
b. Additional reports included are:
(1) Japanese GovernmentFirst and Second Demobilization Bureaus (formerly the Japanese War Ministryand Navy) reports - concerning acquisition costs of Japanese Army and Navy materiel left to the Allied Powersin various areas oy the Japanese armed forces outside Japanat time of surrender
(2) Japanese Government, Foreign Office- consular reports and personal interviews with repatriated commercial attaches, together with research undertaken by them
(3) Japanese Government, Ministry of Finance- research data submitted by financial experts in the service of the Japanese Governmentand data from the annual publications of the Ministry
(4) Bank of Japan, Foreign Department- reports submitted during the war by externally located branches and data from the library of financial information of the Bank
(5) Industrial Bank of Japan- portfolios of historical and financial data of several hundred industrial corporations in Manchuria
(6) Yokohama specie Bank- financial records returned from branches in Southern areas before August 1945
(7) Economic and scientific Section, Finance Division, General Headquarters, Supreme Commander for the Allied Powers- financial records of Closed Institutions.
3. Array of Data:
a. A total of 475,000 reports of Japanese external assets has been received between 8 November 1945 and 30 September 1948. These reports have been classified as follows, according to types of ownership, to facilitate final consideration and disposition of the assets:
(1) 131 government reports
(2) 12,366 corporate reports, comprised of the following:
1/ See Appendix co Vol. III, page 168
Introduction - Array of Data (Cont'd)
(a) 1,550 reports of financial institutions with head offices inside Japan
(b) 19 reports of financial institutions with head offices outside Japan
(c) 7,280 reports of corporations with head offices inside Japan
(d) 3,517 reports of corporations with head offices outside Japan
(e) 29 reports of "Closed Institutions" 1/
(3) 458,417 reports listing individual (private) ownership
b. Additional companies have been identified through corporate registries and other means, and estimates of the value of their assets made on the basis of available figures.
c. In addition to the 29 Closed Institutions mentioned in paragraph 3a(2), above, there are approximately 21 others for which data has been procured from the files of the Economic and Scientific Section, Liquidation Branch,
4. Codification, Tabulation and Summarization:
a. ▣etnods used in the preparation of this report were outlined in a letter to the Chief of Staff, United States Army, Washington, D. C., file AG 386.7(21 Feb 47)CPC/GP, 21 February 1947, subject, "Action Taken in Assembling Data Concerning Japanese External Assets," from General Headquarters, Supreme Commander for the Allied Powers. 2/
b. The original reports of Japanese external assets were coded to permit the recording of such data as geographic area, type of currency and type of property on International Business Machines punch card forms. In addition, all reports were serially numbered within each industry group. Subsequent to the above coding, IBM cards were punched and verified, rosters were prepared, detail cards were reduced to summary card form, and original currency unit values were converted to United Statesdollar values, enabling tabular distributions of data to be prepared by geographic area, currency, and category of property.
5. Conversion Rates:
a. Japanese external assets have been reported in approximately 30 different geographic areas and 90 national currencies. Both in the evaluation of individual reports and the reduction of summary reports from
1/ Institutions closed pursuant to SCAPIN 74, 30 September 1945. See Appendix g, page 183, Vol III
2/ See Appendix f, page 173, Vol III
Introduction - Conversion Rates (Cont'd)
many different currencies to one monetary scancard, the establishment of appropriate conversion rates become a problem on major significance. The
United Stasesdollar is used in this report as the standard unit or common denominator, because of the international recognition of its extensive use and relative ability. Although all values were reported as of August 1945, and exchange rates were calculated for that date, it must be recognized that some reporters used latest available book figures which often dated back several years and other reporters listed assets in inflated Asiatic currencies whose ratio to the Japanese yen fluctuated from month to month. In such cases, rigid application of standard conversion rates appeared unsound and revised exchange rates were used when it was ascertained that reported valuations warranted such procedure :
b. Exchange rates used in this report as a standard for the conversion of the monetary units in which values of Japanese external assets were expressed are indicated in Appendix e, page 173. Of the total value of all assets, approximately 8O percent are reported in Japanese yen, about 15 percent in Asiatic currencies, and the remainder chiefly in United Statesdollars, British pounds, Swissfrancs and Philippinepesos, Conversion rates for the principal currencies, expressed as the equivalent of I United Statesdollar, are as follows:
(1) 15 Japanese yen
(2) 20 Japanese Military yen
(3) 150 Philippine pesos (Southern Development BankCurrency)
(4) 1,200 Federal Reserve Bank of Chinayuan
(5) 48,000 Central Reserve Bank of Chinayuan
(6) 0.25 British pounds
(7) 4.7 SwissFrancs
c. Available official exchange rates of the United StatesTreasury Department for approximately 40 foreign currencies have been appllied in connection with this report. For the balance, official exchange rates reported in the Federal Reserve Bulletin, and as supplemented in the Statistical Abstracts of the United Statesissued by the United States Government, and in the Review of Export Import Procedure issued by the Guaranty Trust Company of New Yorkhave been applied. Conversion rates for Asiatic currencies for which no official data was available were computed separately for each currency.
d. The rate of 15 Japanese yen to 1 United Statesdollar was adopted after considerable research. At the end of the war the international economic activities of Japanwere virtually suspended. Prices were in a state of fluctuation and communication with occupied areas was severed. It was, therefore, difficult to ascertain the exact value relationship of the yen to the dollar in August 1945, but it is believed upon the basis of all available data that the official rate of 15 to 1, established by United States Armed Forcesand recommended by the United States Treasury, is accurate. Study of internal wholesale price indices confirms the general adequacy of this figure. Upon examination of the original external assets reports, it was found that many property owners reported valued as of 1943 or 1944. In such cases the figures were increased to conform to values as of August 1945, and a rate of 15 to 1 was applied to obtain the final equivalent in United Statesdollars.
Introduction - Conversion Rates (Cont'd)
e. Lack of information concerning official and open market rates for Asiatic currencies necessitated special research to ascertain appropriate conversion rates. Assets reported in Asiatic currencies other than yen constituted approximately 15 percent of total external assets but were expressed in namerous monetary units such as Japanese militaryyen, Chinese Federal Reserve Bankyuan, Baongelian yuan, Manchurian yen, Korean yen, Formosan yen, Chinese Central reserve Bankyuan, and Chinese National yuan. A Foreign Exchange Committeecomposed of financial experts from the office of the Civil Property Custodian, the Bank of Japan, the Japanese Government Ministry of Finance, and the ministry of foreign Affairswas established to determine relative purchasing power parities of Asiatic currencies in relation to Japanese yen and United Statesdollars. Though data was insufficient and inadequate, analysis was made of available local wholesale price level indices, gold bar prices, official local currency ratios, volume of note circulation and open market prices for United Statesdollars. Conversion rates for the several Asiatic currencies in question were then established. Use of Military and Southern Development Bankcurrencies in occupied areas, concurrent with local units, made evaluation a complex problem but it is believed that the resultant conversion rates as listed in Appendix e, page 173, are within reasonable limits of accuracy. Consideration of factors applicable to certain major units of currency follows:
(1) The Japanese military yen was issued in 1941 and 1942 for use by Japanese occupation forces in North China, Central China, Hainanand Hong Kong. It was officially quoted at par with the Japanese yen, although interchange was not authorized. In 1943 the Japanese military yen was withdrawn from North China, where it was substituted at par by the Chinese Federal Reserve Bankyuan, and from Central China, where it was replaced by the Chinese Central Reserve Bankyuan at a ratio of 100 CRB yuan to 18 military yen. In Hainanand Hong Kongthe Japanese military yen remained in circulation until the end of the war. Though the official par between Japanese military yen and Japanese yen was maintained, proportionately greater price inflation existed in these two areas than in Japanproper. In view of the relatively lower purchasing power of the Japanese military yen, a conversion rate of 20 to 1 United Statesdollar was adopted.
(2) Special currencies were issued in 1943 by the Southern Development Bankfor use in the various "Japanese occupied areas. These monetary units were intended to supplant other currencies, including Japanese military currency, but actually were substituted only for the latter. Initially, Southern Development Bankcurrencies were issued at par with local currencies but subsequently suffered substantial depreciation from lack of confidence, occasioned among other factors by the emergence of large quantities of currency notes during the progressive withdrawal of Japanese troops from outlying areas and the attendant dislocation of the local banking systems. After consideration of the above circumstances as Introduction - Conversion (Cont'd)
reported by returning officials of the Bank of Taiwan, the Yokohama Specie Bank, and the Southern Development Bank, the following values were assigned to those currencies in terms of the United Statesdollar:
(a) Australian pound .........$ .1000
(b) NetherlandsEast Indies guilder ......... .0200
(c) Burmaand JavaPiastre....... .0200
(d) Philippinepeso....... .0066
(e) Burmarupee ......... .0066
(f) Straits dollar......... .0100
1. Assets reported as acquired in the Philippinesduring the Japanese occupation were converted at the above rate of 150 Southern Development Bankpesos to 1 United Statesdollar. Assets purchased prior to the occupation were converted at the official rate of 2 pesos to 1 United Statesdollar. however, these rates are the subject of continuing research.
(3) The ratio of the Federal Reserve Bank of Chinayuan to the United Statesdollar was fixed at 1,200 to 1 after consideration of the following data available for the month of August 1945:
(a) Official Chinese Governmentrate 1,200 to 1
(b) Purchasing power value based on Tientsingold price 1,300 to 1
(c) Purchasing power value based on Tientsinwholesale price indices 2,005 to 1
(d) Open market rate for United Statesdollars brought into Tientsinby United States Armed Forces. . 1,000 - 1,200 to 1
It should be noted that (a), (b), and (d) conform closely and are based on conditions in active markets. Gold bar prices at 1,300 yuan to 1 dollar, however, include the premium on gold resulting from inherent stability of purchasing power and reflect relative lack of confidence in future stability of other currencies. It is believed that the Tientsinwholesale price indices were higher than the other figures due to the inclusion of certain scarce articles with inflated values which appreciably increased the average price level index.
(4) Extreme depreciation characterized the Central Reserve Bank of China notes and made it difficult to gauge the degree of inflation or to ascertain the exchange rate at the warts end. In general, the rate of 48,000 CRB to 1 US dollar was used, based on the considerations described below:
a. Actual market rate of FRB in North China was Introduction - Conversion hates (Cont'd) reported by returning officials of the Bank of Taiwan, the Yokohama Specie Dank, and the Southern Development Bank, the following values were assigned to these currencies in terms of the United States dollar:
(a) Australian pound $ .1000
(b) Netherlands East Indies guilder..... .0200
(c) Burmaand JavaPiastre ..... .0200
(d) Philippinepeso...... .0066
(e) Burmarupee......... .0066
(f) Straits dollar....... .0100
1. Assets reported as acquired in the Philippinesduring the Japanese occupation were converted at the above rate of 150 Southern Development Bankpesos to 1 United Statesdollar. Assets purchased prior to the occupation were converted at the official rate of 2 pesos to 1 United Statesdollar. however, these rates are the subject of continuing research.
(3) The ratio of the Federal Reserve Bank of Chinayuan to the United Statesdollar was fixed at 1,200 to 1 after consideration of the following data available for the month of August 1945:
(a) Official Chinese Governmentrate......1,200 to 1
(b) Purchasing power value based on Tientsingold price............1,300 to 1
(c) Purchasing power value based on Tientsinwholesale price indices ..............2,005 to 1
(d) Open market rate for United Statesdollars brought into Tientsinby United States Armed Forces. . 1,000 - 1,200 to 1
It should be noted that (a), (b), and (d) conform closely and are based on conditions in active markets. Gold bar prices at 1,300 yuan to 1 dollar, however, include the premium on gold resulting from inherent stability of purchasing power and reflect relative lack of confidence in future stability of other currencies. It is believed that the Tientsinwholesale price indices were higher than the other figures due to the inclusion of certain scarce articles with inflated values which appreciably increased the average price level index.
(4) Extreme depreciation characterized the Central Reserve Bank of Chinanotes and made it difficult to gauge the degree of inflation or to ascertain the exchange rate at the war's end. In general, the rate of 48,000 CRBto 1 USdollar was used, based on the considerations described below:
a. Actual market rate of FRBin North Chinawas Introduction - Conversion. Rates (Cont'd)
1,200 FRBto 1 USdollar at the termination of the war. In November 1945, the Chinese Governmentpublished ratios between Chinese National currency (CNC), Federal Reserve Bank note (FRB dollar), and Central Reserve Banknote (CRB dollar), as: CNC 1 note equals FRB5 note equals CRB200 note.
b. This, of course, means that 1 FRBdollar equals 40 CRBdollars, or that 1 USdollar equals 48,000 CRBdollars (on the basis of the actual market rate of FRB, quoted above). This rate was adopted by the Japanese Ministry of Finance, as it was supported in general by a separate study carried out by the Japanese Embassy in Chinathrough representatives of the Bank of Japan, Yokohama Specie Bankand local Japanese financial experts.
(5) Except for the Shanghaiarea, valuation of Japanese assets was not reported in Chinese National currency and in that area only a small portion of assets was reported in this currency, and was converted at the rate of 24C CNCto 1 USdollar.
(6) Great tendencies toward inflation psychology appeared in the valuations of Japanese assets in Chinese currencies. Later repatriates reporting corporate or individual assets felt the inpact of depreciating FRB, CRB, and CNCdollars as they attempted to evaluate their former property. Hence, analytical studies of specific industries, such as cotton spinning, coal, communication, transportation and warehousing indicated the need for higher conversion rates. As a result, the conversion ratio applied to FRBranged from 1,200 to 2,400 FRBto 1 USdollar, and CRBfrom 48,000 to 96,000 CRBto 1 USdollar. The use of higher conversion ratios in the treatment of various individual reports is in effect the same as applying an adjustment factor to re-evaluate assets originally over-valued in FRBand CRBcurrencies.
(7) For Mongolian yuan there was little statistical information available for local wholesale price indices or other factors upon which to base an estimate. Considering the marked price inflation in Mongoliaat the end of the war, as reported by repatriates, a conversion ratio of 100 mongolian yuan to I USdollar was found to be an appropriate estimate at this time, subject to revision in light of further evidence.
(8) For Korean yen the United States militaryrate of 15 to 1 was applied in this report. Formosan and Manchurian yen have been valued at par with the Korean and Japanese yen since this official ratio was effectively maintained by the Japanese Governmentuntil the end of the war. There is evidence, however, that a lower value may be more accurate for Manchurian yen, as price level indices show relatively greater trend of inflation in Manchuriathan in Japan. The difference in purchasing power between Manchurian and Japanese yen was taken into consideration in analysis and adjustment of major companies prior to conversion of 15 Manchurian yen to 1 USdollar,
Introduction
6. Analysis and Evaluation:
a. Statement of the Problem: The problem of evaluating Japanese external assets is, for the purpose of this report, the problem of adjusting all valuations to a standard of August 1945 price levels in the Orient and converting resultant valuations to equivalent United StatesDollars.
This project required the following research:
(1) Positive identification of all companies which reported assets or were originally assessed by other means, so as to eliminate duplication and the pyramiding of assets of parent companies, branches and subsidiaries
(2) Classification of corporations according to type of industry, location of head office, periods of original capitalization and subsequent investments, and nature of assets
(3) Codification, tabulation, and summarization of reported data according to categories of assets, currencies and geographic area on International Business Machinerecords
(4) Development of statistical procedures for testing and correcting under or over-evaluation of reported assets
(a) Application of official annual exchange rates and price indices to various yearly periods of acquisition
(b) Calculation of resultant United Statesdollar values as of August 1945 by means of United Statesprice level indices
(c) Comparison of d liar values so obtained to the Estimated Actual value originally reported in yen and converted at the rate of 15 - 1
(d) Determination of perecentage of under or over-evaluation in selected groups of reports by reference to ratio obtained in (c) above
(e) Correction or adjustment of the ever or under valuation as obtained in (d) above
(5) Estimation of the value of unreported assets, chiefly those of corporations with head office outside Japan, on the basis of records of incorporation, credit assistance, books of accounts, consecutive balance sheet and profit and loss statements and financial and trade directories. Further reference is made to unreported assets on page 15.
Introduction - Analysis and evaluation (Cont'd)
b. Analysis of Problem: The array of data is not homogeneous. It lacks uniformity due to the following factors:
(1) Loss or failure to maintain accounting records
(2) Diverse accounting procedures of various corporations
(3) Reporting of assets in 80 geographic areas
(4) values expressed in 90 different currencies
(5) Unfamiliarity of the reporters with the extent of inflation as indicated by the official price level indices as of August 1945
(6) Language difficulties: Inaccuracies in the english translation of the reports originally drafted in Japanese
(7) Time sequence:
1. Book values were recorded over a period of 40 years of fluctuating prices
2. Submission of reports cover a period of 12 months of accelerated inflation
c. Development of Solution of Problem:
(1) Differentiation between evaluation of tangible and intangible assets:
(a) Tangible assets were based on date and cost of acquisition or construction, and therefore their "Estimated Actual Value" were raised in proportion to the depreciation of the currency in which they were reported.
(b) Intangible assets, such as bank deposits, accounts and notes receivable, foreign drafts and insurance policies, were considered at book value since the book value of assets of this nature remain the same during periods of currency fluctuation. In areas formerly under Japanese domination, however, reported values for intangibles to a large extent duplicate reported values for assets which represent their tangible counterpart and were discounted as indicated in Explanatory Notes, page 26.
(2) Establishment of Base Period: August 1945 was assigned as the base period and was thereby arbitrarily established as the standard by which all reported estimated actual values were measured relative to price level indices of year of acquisition.