Japanese Companies Turn to Asian Bond Markets... "Preference for Overseas Bonds"

Asia-Pacific Offshore Bond Issuance Hits Record $154 Billion in Q2
Dollar and Euro-Denominated Bonds Surge

As Japan ends its 31-year era of ultra-low interest rates, Japanese companies are turning their attention to overseas bond markets. The Japanese government, led by Prime Minister Sanae Takaichi, has announced an aggressive fiscal policy of 10 trillion yen annually, which is also putting pressure on the bond market. As a result, there is growing momentum for Japanese companies to raise funds by issuing dollar and euro-denominated bonds.

According to Bloomberg News on July 6 (local time), bond issuances in the Asia-Pacific offshore market reached a record quarterly high of 154 billion dollars in the second quarter of this year (April to June). This surpasses the previous record set in 2021. By country, Japan led with 62 billion dollars, followed by Australia with 26 billion dollars and China with 20 billion dollars. The amount raised by Japanese companies in this quarter accounted for 40% of the total offshore bond issuance.

Japanese companies are ramping up overseas bond issuances this year. For example, Sony Group issued 1 billion dollars in dollar-denominated bonds last month. Nikkei Asia noted that this is Sony's first dollar bond issuance in 28 years, since 1998. Panasonic Group, Mitsubishi Corporation, Toyota, and Denso have also reportedly tapped the global bond market recently. Most companies are seeking dollar bonds to secure funds for mergers and acquisitions (M&A) and artificial intelligence (AI) investments.

The Takaichi administration’s aggressive fiscal policy, along with the Bank of Japan’s (BOJ) rate-hike stance, has encouraged these moves by Japanese companies. After ending its negative interest rate policy in March 2024, the BOJ has gradually raised its benchmark rate. Last month, it ushered in an era of 1% policy rates. On top of this, the Japanese government under Sanae Takaichi has announced plans for 10 trillion yen in annual expansionary fiscal spending, putting upward pressure on Japanese bond yields. On July 6, the 10-year Japanese government bond yield—a standard for corporate bond rates—reached 2.83%, the highest level in about 30 years since 1996. A year ago, it was just around 1.6%.

Reuters Yonhap News Agency

As domestic interest rates rise, issuing yen-denominated bonds becomes more burdensome for Japanese companies. From a corporate perspective, it is more cost-effective to issue dollar bonds and convert the proceeds into yen through currency swaps, rather than bearing the burden of higher yen bond issuance. Mel Siu, Head of Asia Primary Market at Muzinich & Co., stated, "It is currently cheaper to issue bonds in U.S. dollars and swap the proceeds into yen," adding, "With the yield curve rising in the Japanese market (interest rates going up), borrowing costs have increased."

Investors are also welcoming the return of Japanese companies. Bloomberg News analyzed that this trend is prompting investors to re-examine their standards and investment strategies, which previously treated the Asian offshore credit market as an emerging market asset class excluding Japan.

This content was produced with the assistance of AI translation services.