A Samurai bond is a yen-denominated bond issued in Tokyo by a non-Japanese company, subject to Japanese regulations.
Other types of yen-denominated bonds are known as Euroyens, which are typically issued in other countries like London.
Key Takeaways
- Samurai bonds are issued in Japan by foreign companies, denominated in yen, and subject to Japanese regulations.
- Companies may issue bonds in yen to capitalize on low Japanese interest rates or to tap into the Japanese markets and investor base.
- Risks associated with raising capital in Japanese yen can often be mitigated using cross-currency swaps and currency forwards.
- Shogun bonds are similar to Samurai bonds but are issued in Japan by foreign firms and are denominated in non-yen currencies.
How a Samurai Bond Works
A company may choose to enter a foreign market to benefit from attractive interest rates or to meet a need for foreign currency. When a company opts to tap into a foreign market, it can issue foreign bonds denoting currency of the intended market.
In essence, a foreign bond is issued in a domestic market by a non-native issuer and denominated in the local currency. This approach allows corporate or sovereign issuers to access another capital market outside their home country to raise funds.
A foreign issuer wanting to enter the Japanese debt market issues a Samurai bond. These bonds enable issuers to access investment capital available in Japan. Non-Japanese companies may use the proceeds from Samurai bonds to tap into the Japanese market or convert them into their local currency for existing operations.
Issuers might transform proceeds from the issuance into another currency to benefit from lower costs stemming from varied investor preferences across markets or temporary conditions that affect swap and bond markets. Samurai bonds might also hedge against foreign exchange rate risk. Companies from volatile domestic economies may prefer issuing in Japan due to its largely stable economic landscape.
For investors in Japan, Samurai bonds offer a safeguard against the currency risks of purchasing bonds in a non-local currency.
Benefits of a Samurai Bond
Denominated in Japanese yen, Samurai bonds grant companies or governments the opportunity to penetrate the Japanese market without facing the currency risks typically involved with foreign investments, since the bonds are issued in yen.
These bonds adhere to Japanese bond regulations, appealing to Japanese investors by allowing them to participate without facing currency risk exposure. As a result, Samurai bonds present attractive investment opportunities in Japan.
Example of a Samurai Bond
In 2017, pursuing acceleration in infrastructure development, the Indonesian government issued three-, five-, and seven-year Samurai bonds raising 40 billion yen, 50 billion yen, and ten billion yen, respectively.
As of 2017, U.S. issuers represent about a third of the Samurai bond market. U.S. issuers cannot deduct their interest costs for newly issued bonds, and investors face a 30% withholding tax on their coupon payments.
Samurai Bonds vs. Shogun Bonds
Do not confuse Samurai bonds with Shogun bonds, which are also issued in Japan by non-Japanese entities but are denominated in a currency other than the yen.
Other foreign bonds include Kangaroo bonds, Maple bonds, Matador bonds, Yankee bonds, and Bulldog bonds.
Related Terms: Shogun bonds, Kangaroo bonds, Maple bonds, Yankee bonds, Bulldog bonds.
