What Is a Samurai Bond?
Let me explain what a Samurai bond is: it's a yen-denominated bond that a non-Japanese company issues in Japan, and it's fully subject to Japanese regulations. You should know that other yen-denominated bonds, called Euroyens, are issued outside Japan, often in places like London.
Key Takeaways
As you consider Samurai bonds, remember they are issued in Japan by foreign companies, denominated in yen, and follow Japanese rules. You might issue one to take advantage of low interest rates in Japan or to connect with Japanese markets and investors. If you're worried about risks from raising capital in yen, you can often handle them with cross-currency swaps and currency forwards. Also, note that Shogun bonds are similar but issued in non-yen currencies by foreign firms in Japan.
How a Samurai Bond Works
If you're a company looking to enter a foreign market, you might do so because you expect good interest rates there or need that currency. When you decide to access a foreign market, issuing foreign bonds—denominated in the local currency—is a direct way. In simple terms, a foreign bond comes from a foreign issuer in a domestic market, using the domestic currency, and it's primarily for corporations or governments to raise capital outside their home market.
For access to Japan's debt market, you as a foreign issuer would issue a Samurai bond. This gives you entry to the investment capital in Japan. You can use the proceeds to enter the Japanese market or convert them to your local currency for ongoing operations. Sometimes, you might convert the proceeds into another currency right away to benefit from lower costs due to investor preferences in segmented markets or temporary conditions affecting swaps and bonds. Samurai bonds also serve to hedge foreign exchange risks, especially if your domestic economy is unstable—Japan's market stability makes it appealing.
Important Note on Investor Benefits
Here's something crucial: for Japanese investors, the benefit of Samurai bonds is that they avoid currency risks since the bonds aren't in a foreign currency.
Benefits of a Samurai Bond
Since Samurai bonds are in Japanese yen, they let a company or government expand into Japan without the usual currency risks of foreign investments. These bonds follow Japanese regulations, drawing in local investors and providing capital to foreign issuers. For Japanese investors, holding these bonds means no currency risk, making them a solid choice.
Example of a Samurai Bond
Take 2017, when the Indonesian government issued Samurai bonds to speed up infrastructure development: they offered three-year bonds worth 40 billion yen, five-year at 50 billion yen, and seven-year at 10 billion yen. As of that year, U.S. issuers accounted for about a third of outstanding Samurai bonds. Keep in mind, U.S. issuers can't deduct interest costs on new bonds, and investors face a 30% withholding tax on coupons.
Samurai Bonds vs. Shogun Bonds
Don't mix up Samurai bonds with Shogun bonds—the latter are issued in Japan by non-Japanese entities but in currencies other than yen.
Fast Fact on Other Foreign Bonds
You should also be aware of other foreign bonds like Kangaroo bonds, Maple bonds, Matador bonds, Yankee bonds, and Bulldog bonds, each tied to specific markets.
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