Japanese Companies Surge Ahead in Global Race for Dollar Bonds Amid Policy Divergence

Japanese companies are leading a sharp increase in dollar bond issuance, with $32.6 billion raised so far, this fiscal year. Amid divergent monetary policies between the U.S. and Japan, businesses are tapping into the U.S. market to expand overseas and reduce funding costs.

Japanese Firms Increase Dollar Bond Issuance, Capitalizing on Divergent U.S. and Japan Monetary Policies

One of the most significant increases in issuance among major economies this year is the scramble by Japanese companies to sell dollar bonds as investors prepare for divergent monetary policy.

Last week, Kyushu Electric Power Co. became the most recent Japanese issuer to sell dollar bonds, joining creditors such as Meiji Yasuda Life Insurance Co. and Marubeni Corp. in September. The company aimed to attract a broader investor base that was not centered on the domestic market.

Bloomberg has compiled data indicating that Japanese firms have issued $32.6 billion in US currency debt, a three-year high and a 60% increase in the fiscal year that commenced in April. This is a more rapid growth rate than other central issuing countries, such as the United Kingdom, Canada, and Germany.

The sales increase underscores the transformations that issuers and investors encountered as the US Federal Reserve initiated a monetary easing cycle while the Bank of Japan pursued an opposing course. Investors in dollar bonds can diversify their portfolios by purchasing debt from Japanese companies that are infrequent issuers and of high quality. Borrowers can raise dollar funds at a reduced cost, and if the yen strengthens, they will require fewer Japanese currency funds to repay dollar debt.

“When interest rates are low or stable, the environment would make it easier for companies selling dollar bonds for the first time in a long while to do so,” said Shunsuke Oshida, head of credit research at Manulife Investment Management Japan.

Japanese Firms Turn to Dollar Bonds Amid Fed's Rate Cuts and Domestic Market Limitations

The Fed's 50-basis point interest rate reduction has partially facilitated a contraction in corporate credit spreads, which is desirable for issuers worldwide. According to Bloomberg-compiled data, September was Asia's second-busiest month of the year, and Kyushu Electric entered the dollar-debt market for the first time in 27 years.

According to a Bloomberg index, the yield premiums for dollar bonds have decreased to 89 basis points, the lowest level since mid-June, due to the anticipated additional rate reduction by the Federal Reserve.

At a time when a declining population at home restricts the potential for growth in domestic markets, Japanese companies must raise dollar funds to expand abroad. For example, Japan's largest banks have endeavored to expand their operations in the United States, emphasizing sectors such as syndicated lending and capital markets.

Manulife's Oshida stated that companies could only survive in Japan, which has a declining geriatric population if they invested overseas.