Samurai Bonds Enter Their Prime Era

Foreign Companies Issue 13 Trillion This Year

As the South Korean government embarks on issuing yen-denominated Foreign Exchange Equalization Fund Bonds (FEF Bonds) targeting Japanese institutional investors for the first time in history, it has been revealed that the issuance volume of 'Samurai Bonds' (yen-denominated bonds) by overseas companies reached the highest level in four years through the second quarter of this year. Unlike the United States, where a recession is forecast due to high-intensity tightening, Japan's economy, which has maintained a stable recovery by continuing monetary easing policies for ten years, is gaining trust that is reflected in the issuance of FEF Bonds.

On the 23rd, Bloomberg reported that Samurai Bonds issued by foreign companies from the first quarter (April to June) to the start of the second quarter (July to September) of the 2023 fiscal year amounted to approximately 1.044 trillion yen (about 13.0732 trillion KRW). This is the largest issuance amount recorded for the same period since 2019. Samurai Bonds refer to yen-denominated bonds issued in Japan by foreign governments or overseas companies targeting investors within Japan.

Following this trend, the French financial group BPCE issued Samurai Bonds worth 197.7 billion yen on the 6th of last month. This is the largest scale of yen-denominated bonds issued by BPCE. Daiwa Securities, the lead underwriter of BPCE's bond issuance, explained, "Strong buying interest arose mainly from institutional investors such as regional financial institutions and pension funds." Additionally, Berkshire Hathaway, Warren Buffett's investment holding company, issued Samurai Bonds worth 164.4 billion yen in April. PayPal also issued bonds in the 90 billion yen range last month for the first time since its founding.

Korean companies have also joined the ranks of Samurai Bond issuers. Korea Investment & Securities successfully issued Samurai Bonds worth 20 billion yen to local institutional investors in Japan on the 13th. Korean Air also issued yen-denominated bonds worth 20 billion yen in June, guaranteed by the Export-Import Bank of Korea.

The background behind overseas companies issuing bonds is analyzed to be influenced by the Bank of Japan's (BOJ) consistent monetary policy. The BOJ has maintained its stance to continue accommodative monetary policy despite Japan's inflation rate exceeding the BOJ's target of 2%. Investors tend to prefer currencies of countries with low interest rates and low financial market volatility because they use FEF Bonds as a key means of raising foreign currency reserves.

Japan's economic rebound is also cited as a reason for the increased demand for bond issuance. Japan's Gross Domestic Product (GDP) for the first quarter of this year, announced last month, increased by 0.7% compared to the previous quarter. The current account surplus in April recorded 1.8951 trillion yen, a 76.3% increase compared to the same month last year. As of the 24th, the Nikkei index has fluctuated slightly around the 32,600 level, but on the 28th of last month, it surpassed the 33,000 mark for the first time in 33 years.

The Nihon Keizai Shimbun stated, "While U.S. regional banks are experiencing management instability and the U.S. economy is seen as uncertain, a recession would cause turmoil in the bond market. In contrast, Japan's economy is stable, leading to increased demand for yen-denominated bonds."

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