Credit Market in Japan Bucks Global Trend as Firms Line Up Deals

Japan is one of the few major markets where corporate bond sales are barreling ahead as issuers grab what may be their last opportunity to lock in low borrowing costs.

(Bloomberg) — Japan is one of the few major markets where corporate bond sales are barreling ahead as issuers grab what may be their last opportunity to lock in low borrowing costs. 

Toyota Motor Corp., the world’s largest carmaker, and at least 20 other firms are looking to raise funds in October. That would add to ¥12.7 trillion ($85 billion) of deals so far this year, the most for that period on record. In contrast, US investment-grade corporate bond issuance has fallen to the lowest in four years.

With some flagging the risk that the Bank of Japan will move away from ultra-easy policy as early as December, companies are jumping in now to enjoy some of the world’s lowest borrowing costs while they still can. The central bank last month stuck with its policy, underlining the gap between Japan and markets like the US or Europe where interest rates look set to stay elevated. 

“Given the current economic indicators and the outlook for BOJ monetary policy, we see a scenario in which interest rates are more likely to rise rather than fall,” said Hiroshi Oikawa, head of Japan DCM Syndicate at BofA Securities Japan Co. “Issuers are looking to procure financing before that.”

A government push for savers to shift more into investments is resulting in a more active credit market and a broader range of products. Among public offerings, there was a debut sale of bonds by a company without credit ratings, and SoftBank Corp. is planning to issue bond-type stock in the first of its kind in the country.

Yen bond issuance is still far behind some major global markets, despite the increase in sales from both domestic and foreign issuers. Some $1 trillion of US high-grade dollar bonds priced this year, more than ten times the amount in Japan, data compiled by Bloomberg show. 

Toyota, Kirin Holdings Co., East Japan Railway Co., Mitsubishi UFJ Financial Group Inc. are among those offering notes this month. While yields on Japanese corporate bonds have inched up recently, at around 0.9% they’re still significantly less than other major economies globally. 

At the same time, investors in Japanese corporate bonds have enjoyed a return of 0.5% so far this year, after the first annual loss in 11 years in 2022. 

While the prospect of a change from the BOJ has brought more volatility to Japanese markets, any step by Governor Kazuo Ueda away from negative interest rates may be gradual, limiting the pain for credit.  

“Even if Japanese interest rates rise, the direct impact will be relatively small compared to overseas markets,” said Makiko Yoshimura, director of corporate ratings at S&P Global Ratings.  

An end to the BOJ’s negative-rate policy and yield-curve control program may come in January, with a “risk of early revision” in December, Morgan Stanley MUFG Securities Co. said last week.

“The trend of front-loading financing is expected to continue,” said Akihiro Igarashi, managing director of the syndicate department at Nomura Securities Co. 

–With assistance from Finbarr Flynn and Ayai Tomisawa.

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