Japanese companies are increasingly issuing USD bonds as investors brace for diverging monetary policies. Since April, the issuance of USD bonds by Japanese firms has surged by 60%, reaching a three-year high of $32.6 billion. This growth is faster than that seen in other major bond-issuing countries such as Germany, the UK, and Canada.
In recent developments, Kyushu Electric Power Co. has become the latest Japanese issuer to enter the USD bond market following Meiji Yasuda Life Insurance and Marubeni Corp. This spike in issuance highlights the shifting landscape for both issuers and investors, as the Federal Reserve embarks on a monetary easing cycle, while the Bank of Japan moves in the opposite direction. For investors, this trend offers an opportunity to diversify assets by purchasing bonds from high-quality Japanese companies. For borrowers, it means they can raise USD funds at a lower cost, particularly if the yen strengthens, which would reduce the yen amount needed to repay USD debts.
According to Shunsuke Oshida, Head of Credit Research at Manulife Investment Management Japan, the current low or stable interest rates make it easier for companies to issue USD bonds for the first time in a long while. The Federal Reserve's 50 basis point rate cut has narrowed corporate credit spreads, making it an attractive development for global issuers.
Data indicates that September was the second busiest month for Asia this year, with Kyushu Electric Power entering the USD bond market for the first time in 27 years. The expectation of further rate cuts by the Federal Reserve has lowered borrowing costs, with Bloomberg indices showing that the yield premium on USD bonds has dropped to 89 basis points, the lowest since mid-June.
As Japan's shrinking domestic population limits the growth potential of its local market, raising USD funds is crucial for Japanese companies planning to expand overseas. For example, some of Japan's largest banks are aiming to expand their presence in the U.S., focusing on areas such as syndicated loans and capital markets.
Oshida from Manulife emphasized that without overseas investments, Japanese companies might struggle to survive solely within Japan due to the declining and aging population.
