Euroyen Bond

What Is an Euroyen Bond?

Euroyen bond — a form of Eurobond — is a type of debt security that is designated in Japanese yen yet held outside of Japan. A Euroyen is issued by a non-Japanese company (outside of Japan) to draw in non-Japanese investors who need exposure to the Japanese currency. Note that the Euro-prefix doesn't be guaranteed to mean that the bond is held in Europe.

How an Euroyen Bond Works

Euroyen bonds gained noticeable quality around 1984 and soon after when Japan's financial markets opened up to foreign investment. Today, these bonds are an efficient way for a non-Japanese company to procure funding from investors searching for exposure to the Japanese yen — without working in Japan.

Euroyen bonds are issued in the Eurobond market. The Eurobond market comprises of bonds that companies issue — outside of their own nations — in foreign currencies. On account of Euroyen bonds, non-Japanese companies issue bonds in Japanese yen principally to appeal to investors who want exposure to the Japanese currency (JPY). Notwithstanding the inclusion of "euro" in their names, neither Euroyen bonds nor Eurobonds should be traded in Europe, by European companies, or with the utilization of the euro.

Otherwise called offshore yen, the foundation of Euroyen allowed Japan to change its capital markets and develop its position in international trade.

Benefits of Euroyen Bonds

Foreign companies might decide to issue Euroyen bonds to keep away from regulations while giving bonds registered with the Tokyo Stock Exchange (TSE). They can likewise stay away from regulation by the Bank of Japan (BOJ), Japan's central bank. Nonetheless, Japanese law can limit the number of investors that an Euroyen bond can target.

Similarly as with Eurobonds, giving this type of bond allows companies to benefit from better interest rates abroad than what is available in their own country. Meanwhile, they can appeal to investors since they are in many cases not subject to automatic withholding of assessment — Euroyen bonds are normally issued in bearer form, meaning they are unregistered and the Internal Revenue Service (IRS) isn't advised about any income earned on them. Euroyen bonds additionally will generally have small par values, making them accessible to additional investors.

Their high levels of liquidity mean that the investor has the confidence that they can actively trade these instruments. The trader isn't required to hold a long-term investment, would it be advisable for them they need to sell and reinvest. Euroyen bonds and Eurobonds can likewise be great ways for investors to safeguard their money assuming their own country's currency loses value.

Euroyen Bonds versus Samurai Bonds

Euroyen bonds are by all accounts not the only way for foreign companies to issue bonds in the Japanese currency. Samurai bonds likewise allow foreign issuers to bring funds up in Japanese yen. Be that as it may, the samurai bonds are subject to common Japanese regulations.

On the off chance that a company is just searching for a short-term financing strategy, Euroyen bonds can be more streamlined and simpler to set up than Samurai bonds. For instance, bonds registered with the TSE must have all documentation imprinted in Japanese. Euroyen bonds are not limited by this regulation, saving issuers from a possibly relentless and exorbitant translation process.

Another variation is called a Shogun bond, which is issued in Japan by a non-Japanese entity, yet isn't yen-designated.

Euroyen bonds might be more appealing to companies hoping to develop their relationship with Japanese investors.

Illustration of an Euroyen Bond

Say that an international carmaker situated in the United States likewise sells a large number of cars to Japanese consumers. To hedge against a portion of their JPY currency exposure, and furthermore to possibly draw in Japanese investors and extend attaches with the Japanese investing public, the company chooses to issue JPY \u00a51.15 billion (approx. USD $10 million) in yen-designated Euroyen Bonds.

Since they are issued by and registered to an American company, they are likewise able to offer higher interest rates to investors than corporate bonds issued domestically by Japanese firms inside their own country.

Highlights

• Euroyen bonds are issued by non-Japanese companies (outside of Japan) to draw in non-Japanese investors who need exposure to the Japanese currency.
• An Euroyen bond is a type of debt security that is designated in Japanese yen.
• It is a type of Eurobond, where an Euroyen basically alludes to Yen-designated assets held outside of Japan.
• Euroyen bonds are normally issued in bearer form, meaning they are unregistered and not subject to automatic withholding charge — it depends on the investor to declare any income earned.
• An Euroyen bond allows companies to benefit from better interest rates abroad than what is available in their own country, and their small par values make them accessible to additional investors.

FAQ

What Is an International Bond?

By and large, a international bond alludes to bonds that are issued outside of the United States and named in their own nearby currency. These might be corporate bonds issued by companies or government bonds.

How Does a Samurai Bond Work?

A Samurai bond allows non-Japanese substances to issue Yen-designated debt in Japan. Companies could issue these bonds to exploit Japan's generally low interest rates, or to gain direct exposure to Japanese markets and investors.

What Are the Main Risks of Owning an Euroyen Bond?

Beside the traditional risks of bonds connected with interest rates and the creditworthiness of the issuer, Euroyen bonds additionally carry currency risk, since they are named in JPY. This means that even assuming that the bond gains in value, on the off chance that the Yen falls relative to (e.g.,) the dollar, you can in any case lose money as an American investor. There is likewise a level of international risk exposure to Japan and the Asia-Pacific region not found in domestic bonds.

How Do I Invest in Foreign Bonds?

Assuming your broker approaches international bond markets, you might have the option to directly buy foreign bonds. If not, there are several mutual funds and ETFs that give more diversified access to international bond markets, for example, the Vanguard Total International Bond ETF (BNDX).