Japan firms rush past global peers in hunt for US dollar funds

COMPANIES in Japan are rushing to sell US dollar bonds, marking one of the biggest increases in issuance this year among major economies as investors brace for diverging monetary policy.

Targeting a larger investor base away from the home market, Kyushu Electric Power became the latest Japanese issuer to sell US dollar bonds last week, joining borrowers such as Meiji Yasuda Life Insurance and Marubeni in September.

Japanese firms’ issuance of US currency debt has surged 60 per cent so far in the fiscal year that started in April to a three-year high of US$32.6 billion, according to data compiled by Bloomberg. That’s a faster pace of increase than other major issuing countries including Germany, the UK and Canada.

The sales jump highlights the changes issuers and investors face as the US Federal Reserve kicked off a monetary easing cycle while the Bank of Japan headed in the opposite direction. US dollar bond investors get the opportunity to diversify their holdings by buying debt of good quality Japanese companies that are infrequent issuers. For borrowers, it means they can raise US dollar funds at lower costs, and if the yen strengthens as a result they will need less Japanese-currency funds to repay US dollar debt.

“When interest rates are low or stable, the environment would make it easier for companies selling US 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.

The Fed’s 50-basis point interest rate cut has contributed in part to a contraction in corporate credit spreads, an appealing development for issuers across the globe. Asia saw its second-busiest month of the year in September, which saw Kyushu Electric tapping the US dollar-debt market for the first time in 27 years, according to Bloomberg-compiled data.

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Expectations of further rate cuts by the Fed have reduced borrowings costs for US dollar bonds, with yield premiums falling to 89 basis points, the lowest level since mid-June, according to a Bloomberg index.

Raising US dollar funds is important for Japanese companies aiming to expand abroad at a time when a shrinking population at home limits the potential for growth in domestic markets. Japan’s biggest banks, for example, have tried to enlarge their operations in the US, with a focus on areas including syndicated lending and capital markets.

If Japanese companies do not invest overseas, “they won’t be able to survive in Japan alone given a falling and ageing population”, Manulife’s Oshida said. BLOOMBERG