As investors brace for diverging monetary policies, Japanese companies are flocking to issue dollar bonds, marking one of the largest increases in dollar bond issuance among major economies this year. Data compiled by Bloomberg shows that, as of the fiscal year starting in April, the dollar bond issuance by Japanese firms has surged by 60%, reaching a three-year high of $32.6 billion. This growth rate outpaces other major bond-issuing countries such as Germany, the United Kingdom, and Canada.
Following the issuance of dollar bonds by Meiji Yasuda Life Insurance Company and Marubeni Corporation in September, Kyushu Electric Power Company became the latest Japanese issuer to tap the dollar bond market last week.
The surge in dollar bond issuance by Japanese companies to a three-year high highlights the changes faced by issuers and investors as the Federal Reserve initiates an easing cycle while the Bank of Japan moves in the opposite direction. Dollar bond investors have the opportunity to diversify their assets by purchasing bonds from high-quality Japanese companies. For borrowers, this means they can raise dollar funds at a lower cost, and if the yen strengthens, they will need fewer yen to repay their dollar debts.
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Shunsuke Oshida, Head of Japan Credit Research at Manulife Investment Management, said, "When interest rates are low or stable, this environment will make it easier for companies to issue dollar bonds for the first time in a long period."
The Federal Reserve's 50 basis point rate cut has contributed to a narrowing of corporate credit spreads, which is an attractive development for global issuers. According to data compiled by Bloomberg, September was the second busiest month for Asia this year, with Kyushu Electric entering the dollar bond market for the first time in 27 years.
Expectations of further rate cuts by the Federal Reserve have reduced the borrowing costs of dollar bonds, with the yield premium on dollar bonds falling to 89 basis points, the lowest level since mid-June.
Raising dollar funds is crucial for Japanese companies planning to expand overseas, especially as domestic population decline limits the growth potential of the domestic market. For example, some of Japan's largest banks have been trying to expand their operations in the United States, focusing on areas such as syndicated loans and capital markets.
Oshida from Manulife said that if Japanese companies do not invest overseas, "considering the continuous decline and aging of the Japanese population, they will not be able to survive solely on Japan."
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