JAPAN’S corporate bond market is booming, as an economic rebound and plans to get ahead of higher interest rates encourage a flurry of issuance.
Japanese companies have sold 14.7 trillion yen (S$130 billion) of local-currency bonds in the current fiscal year, a record for the period, according to data compiled by Bloomberg. A key motivation: locking in funding ahead of an anticipated series of rate hikes, which will push up future borrowing costs.
The issuance surge underscores the sweeping changes taking place in Japan. The central bank has ended the world’s boldest experiment with ultra-loose monetary policy, the economy is finally turning a corner and a series of corporate governance reforms have put pressure on local companies to hunt for growth.
“The range of companies issuing bonds has expanded, and even the same companies are moving to raise larger amounts of capital,” said Hajime Suwa, head of capital markets group at Mitsubishi UFJ Morgan Stanley Securities.
The median forecast of economists surveyed by Bloomberg is for rates to climb to about 1.1 per cent in 2027 up from 0.5 per cent now. But many executives stress the positives of higher rates, which are a reflection of the country’s long-anticipated economic recovery.
“The flip side of interest rate increases is growth,” Takashi Ueda, chief executive officer of property developer Mitsui Fudosan, said at a briefing. “Short-term, there may be some drawbacks but from a long-term perspective it’s a sign of growth and part of a process of returning to the way things should be.”
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Borrowing rates for corporations in Japan are still some of the lowest in the world, even after climbing to an average of 1.39 per cent from around 0.87 per cent this time last year, a Bloomberg bond index shows.
Governance changes
Companies are also responding to a series of governance changes reverberating throughout Tokyo boardrooms, including rising investor activism and guidance by the Tokyo Stock Exchange that listed companies should improve their valuations and returns to shareholders.
Sony Group looks set to become the latest flagship name to tap the market, after announcing a 110 billion yen deal that will have a faster-than-usual syndication period – a sign Japan’s bond market is moving closer to global standards.
Rising bond issuance comes alongside a wider surge in dealmaking in the country. Telecom firm KDDI has turned to the bond market to help finance its acquisition of shares in Lawson, while foreign buyout firms including KKR have lined up big takeovers.
Japanese companies and banks are also increasing their issuance offshore. US dollar and euro bond sales from these issuers and their overseas units has hit almost US$89 billion since Apr 1, the highest total in three years, according to data compiled by Bloomberg.
There are some caveats to the issuance boom. Japanese companies are cash rich, which could reduce their desire to keep borrowing. Cash held by private non-financial corporations was around 350 trillion yen as at September, roughly double where it was in the late 1990s, according to data from the Bank of Japan.
Japan’s economy is also exposed to US President Donald Trump’s tariff threats, which have fuelled volatility in the yen and raised uncertainty for exporters. But even the risk of economic turmoil could encourage Japanese issuers to sell bonds, since volatility increases the danger of delaying issuance.
“We want as much as possible to lock in funding including bond sales in the first half of this year given the possibility for some economic turmoil in a world where interest rates may or may not rise,” said Makoto Tani, chief executive officer of Skylark Holdings, a major restaurant chain, in a brief interview. BLOOMBERG
