What is a Samurai bond?

What are the ways foreign companies can access Japan’s debt capital market? Non-Japanese companies can issue Samurai bonds in Japan and obtain funds for their businesses. Read on for an explanation of Samurai bonds.

Samurai bonds are a type of corporate bond issued by non-Japanese issuers to target mainly Japanese investors.

Japan’s regulatory body Financial Services Agency (FSA) defines Samurai bonds as a Japanese yen (JPY) denominated debt security issued in Japan by a foreign government or foreign company. The bond is governed by Japanese law and the FSA oversees the rules and regulations on the issuance of Samurai bonds.

Samurai bonds vs. Shogun bonds

Shogun bonds are non-JPY denominated debt securities issued in Japan by non-Japanese entities.

How does a Samurai bond work?

The bonds are usually denominated at JPY100m per bond and may be issued to institutional or retail investors. For the latter, denomination for the bond can be set at lower than JPY100m per bond.

Samurai Bonds are electronically settled and issued under the ‘Book-Entry Transfer System’ of the Japan Securities Depository Centre. 

Issuing a Samurai bond means the issuer can gain access to the financial markets in Japan, which helps foreign companies obtain funds for their businesses. The issuers can either convert the proceeds into other currency or invest it in the Japanese market.   

One of the Samurai bond advantages is that the issuing entity can convert the proceeds of this bond to a different currency at a lower cost. As the bond hedges the currency variation risk, it appeals to Japanese investors. Samurai bonds also provide a lower coupon rate than other bonds. The Japanese bond market is more stable compared with the US and European markets, which appeals to issuers with lower risk appetites.

However, US issuers are subject to double taxation, high admirative burdens and a lack of flexibility of issuance terms and conditions.

The Bank of Japan’s yield curve control policy has inadvertently acted in the interest of Samurai bonds. As the Japanese central bank set the short-term rate target at -0.1% and 0% for the 10-year Japanese Government Bond, the higher yield on Samurai bonds became more attractive for investors. The recent Samurai bond issued by Egypt in March targets a yield of between 0.8-0.85% for the five-year debt securities.

Samurai bond example

In March 2019, the Malaysian government issued 10-year Samurai bonds worth JPY300bn, the proceeds from the bond issues were for financing developments in Malaysia such as infrastructure, hospitals and schools.