What Is a Samurai Bond?
A Samurai bond is a yen-designated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations.
Different types of yen-designated bonds are called Euroyens and issued in countries other than Japan, regularly in London.
How a Samurai Bond Works
A company might decide to enter a foreign market assuming it accepts that it would get appealing interest rates in this market or on the other hand assuming that it has a requirement for foreign currency. At the point when a company chooses to tap into a foreign market, it can do as such by giving foreign bonds, which are bonds designated in the currency of the expected market.
Basically, a foreign bond is issued in a domestic market by a foreign issuer in the currency of the domestic country. Foreign bonds are fundamentally used to furnish corporate or sovereign issuers with access to one more capital market outside their domestic market to raise capital.
A foreign issuer who needs access to the Japanese debt market would issue a bond alluded to as a Samurai bond. Samurai bonds enable issuers to access investment capital accessible in Japan. The proceeds from the issuance of Samurai bonds can be utilized by non-Japanese companies to break into the Japanese market, or it very well may be changed into the responsible company's nearby currency over completely to be utilized on existing operations.
Issuers may all the while convert proceeds from the issue into one more currency to exploit lower costs that might result from investor inclinations that vary across segmented markets or from impermanent market conditions that differentially influence the swaps and bond markets. Samurai bonds can likewise be utilized to hedge against foreign exchange rate risk. Giving companies that operate in a shaky domestic economy could opt to issue bonds in the Japanese market which is to a great extent defined by its stability.
The benefit of Samurai bonds to investors in Japan is that they are not presented to currency risks of purchasing bonds in another currency.
Benefits of a Samurai Bond
Samurai bonds are designated in Japanese yen. Consequently, Samurai bonds offer a company or government a chance to venture into the Japanese market without the currency risks typically associated with a foreign investment since the bonds are issued in yen.
The bonds are subject to Japanese bond regulations, drawing in investors from Japan and giving capital to foreign issuers. Since investors bear no currency risk from holding these bonds, Samurai bonds are appealing investment opportunities for Japanese investors.
Illustration of a Samurai Bond
In 2017, to accelerate Indonesia's infrastructure development program, the Indonesian government issued three-, five-, and seven-year Samurai bonds worth 40 billion yen, 50 billion yen, and 10 billion yen, separately.
U.S. issuers make up about 33% of outstanding Samurai issuers, starting around 2017. U.S. issuers can't deduct their interest costs for recently issued bonds, and investors are subject to a 30% withholding tax on their coupon payments.
Samurai Bonds versus Shogun Bonds
The Samurai bond isn't to be mistaken for the Shogun bond, which is issued in Japan by a non-Japanese giving entity yet designated in a currency other than the yen.
Other foreign bonds incorporate Kangaroo bonds, Maple bonds, Matador bonds, Yankee bonds, and Bulldog bonds.
- Companies could issue bonds in yen to capitalize on low Japanese interest rates, or to gain exposure to Japanese markets and investors.
- Risks associated with bringing capital up in Japanese yen can frequently be alleviated with cross-currency swaps and currency advances.
- Samurai bonds are issued in Japan by foreign companies, named in yen, and subject to Japanese regulations.
- Shogun bonds, similar to Samurai bonds, are bonds issued in Japan by foreign firms, however dissimilar to Samurai bonds are named in non-yen currencies.