Samurai Bond
Table of Contents What Is a Samurai Bond? Shogun bonds, like Samurai bonds, are bonds issued in Japan by foreign firms, but unlike Samurai bonds are denominated in non-yen currencies. Other foreign bonds include Kangaroo bonds, Maple bonds, Matador bonds, Yankee bonds, and Bulldog bonds. Thus, Samurai bonds give a company or government an opportunity to expand into the Japanese market without the currency risks normally associated with a foreign investment since the bonds are issued in yen. How a Samurai Bond Works Samurai Bonds vs. Shogun Bonds A Samurai bond is a yen-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations.
What Is a Samurai Bond?
A Samurai bond is a yen-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations.
Other types of yen-denominated bonds are called Euroyens and issued in countries other than Japan, typically in London.
How a Samurai Bond Works
A company may choose to enter a foreign market if it believes that it would get attractive interest rates in this market or if it has a need for foreign currency. When a company decides to tap into a foreign market, it can do so by issuing foreign bonds, which are bonds denominated in the currency of the intended market.
Simply put, a foreign bond is issued in a domestic market by a foreign issuer in the currency of the domestic country. Foreign bonds are mainly used to provide corporate or sovereign issuers with access to another capital market outside their domestic market to raise capital.
A foreign issuer who wants access to the Japanese debt market would issue a bond referred to as a Samurai bond. Samurai bonds give issuers the ability to access investment capital available in Japan. The proceeds from the issuance of Samurai bonds can be used by non-Japanese companies to break into the Japanese market, or it can be converted into the issuing company's local currency to be used on existing operations.
Issuers may simultaneously convert proceeds from the issue into another currency in order to take advantage of lower costs that may result from investor preferences that differ across segmented markets or from temporary market conditions that differentially affect the swaps and bond markets. Samurai bonds can also be used to hedge against foreign exchange rate risk. Issuing companies that operate in an unstable domestic economy might opt to issue bonds in the Japanese market which is largely defined by its stability.
The benefit of Samurai bonds to investors in Japan is that they are not exposed to currency risks of purchasing bonds in another currency.
Benefits of a Samurai Bond
The bonds are subject to Japanese bond regulations, attracting investors from Japan and providing capital to foreign issuers. Since investors bear no currency risk from holding these bonds, Samurai bonds are attractive investment opportunities for Japanese investors.
Example 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, respectively.
U.S. issuers make up about a third of outstanding Samurai issuers, as of 2017. U.S. issuers cannot deduct their interest costs for newly issued bonds, and investors are subject to a 30% withholding tax on their coupon payments.
Samurai Bonds vs. Shogun Bonds
The Samurai bond is not to be confused with the Shogun bond, which is issued in Japan by a non-Japanese issuing entity but denominated in a currency other than the yen.
Other foreign bonds include Kangaroo bonds, Maple bonds, Matador bonds, Yankee bonds, and Bulldog bonds.
Related terms:
Bond : Understanding What a Bond Is
A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. read more
Coupon
A coupon is the annual interest rate paid on a bond, expressed as a percentage of the face value, also referred to as the "coupon rate." read more
Cross-Currency Swap and Example
A cross-currency swap is an agreement between two parties to exchange interest payments and principal denominated in two different currencies. These types of swaps are often utilized by large companies with international operations. read more
Currency Risk
Currency risk is a form of risk that arises from the change in price of one currency against another. Investors or companies that have assets or business operations across national borders are exposed to currency risk that may create unpredictable profits and losses. read more
Dollar Bond
A dollar bond is a U.S. denominated bond that trades outside of the U.S. and both the principal and any coupon payments are paid in U.S. dollars. read more
Dual Currency Bond
A dual currency bond is a debt instrument where the coupon payment is denominated in one currency and principal payments in another. read more
Euroyen Bond
Euroyen bond is a debt security issued by a non-Japanese company outside of Japan to attract non-Japanese investors who seek exposure to the yen. read more
Fixed Income & Examples
Fixed income refers to assets and securities that bear fixed cash flows for investors, such as fixed rate interest or dividends. read more
Foreign Bond
A foreign bond is a bond that is issued in a domestic market by a foreign entity, in the domestic market's currency. read more
Foreign Exchange Risk
Foreign exchange risk refers to the losses that an international financial transaction may incur due to currency fluctuations. read more