MASARYK UNIVERSITY
FACULTY OF ECONOMICS AND ADMINISTRATION
Finance
Samurai Bonds
Advisor: Ing. Luděk Benada
Prepared by: Liridon Gashi
CONTENT
 Introduction
 History
 Rating Requirement
 Required Standards
 Advantages and Disadvantages
 Conclusion
Bibliography – Internet sources
I
What Are Bonds?
So what are bonds exactly? It's quite simple, actually; a bond is really nothing more than a
loan, but instead of you taking out the loan to buy a car or house or whatever, you are the
lender. Companies and government organizations require capital for everything, but large
organizations require much more than can be provided through regular channels such as
banks. The solution is for them is to issue a bond on a public market, whereupon hundreds
or thousands (or even millions!) of investors will provide the needed capital.
Samurai Bonds
A samurai bond is “a yen-dominated bond issued in Tokyo by non- Japanese companies and subject to
Japanese regulations”. These bonds provide the issuer with an access to Japanese capital, which can be
used for local investments or for financing operations outside Japan. A bond offered for sale on the
Japanese markets in yen by a foreign company
Foreign borrowers may want to issue in Samurai market to hedge against foreign currency exchange risk.
Another intention may be simultaneously exchanging the issue into another currency, in order to take
advantage of lower costs. Lower costs may result from investor preferences that differ across segmented
markets or from temporary market conditions that differentially affect the swaps and bond markets.
History
Samurai Bond Market was opened in 1970 when the Ministry of Finance authorized supranational and
highly rated foreign government entities to issue Samurai bonds within certain size and maturity
restrictions”. The market opened due to growing Japanese foreign currency reserves during late 60’s. The
exchange rate of the yen at that time was fixed at 360 yen per US dollar. “It was revalued to 308 yen in
1971 and moved to a floating rate system in February 1973”. To discourage foreign exchange pressure,
the Japanese government decided to open capital market allowing foreign entities to issue yendominated bonds. However, at the time the market opened, only governmental entities could issue bonds.
The Blue chip (stock market) corporations were allowed to issue Samurai bond later in 1978.
The Asian Development Bank issued the first Samurai bond in November 1970.The issue amount was 6
billion yen with a 7-year maturity, and the bond was accepted very well in the market. At first, Asian
Development Bank and other high credit supranational issuers were given an access priority to the
market. To control stream of issuance, the special criteria was established. Those who were unable to
meet eligibility criteria could finance yen through yen-dominated private placement bonds. They
were permitted to target a restricted number of institutional investments, and terms and liquidity were
under close control. In 1972 the first non- Japanese 10 billion yen bond was issued by Australia. In 1979,
Sears made the first corporate Samurai bond issue for 20 billion yen. At that time, Samurai market
gradually became accessible to more issuers through the alleviation of eligibility criteria, which now
required minimum credit ratings, and through liberalization of new kinds of bonds. In addition, Samurai
bonds provided an opportunity of issuing in two different currencies, as well as interest and principal were
paid in ether of these currencies.
Liquidation of Rating Requirement
In 1984, a liberalization step was taken to reduce the required minimum credit rating from double A to
single A. “In 1991, the minimum rating requirement for foreign governments, central banks, and foreign
government- guaranteed institutions was lowered to triple-B”. In January 1996, Samurai market
eliminated the minimum requirement for credit rating, increasing private sector share of the Samurai bond
market.
Required Standards
The eligibility criteria for issuing Samurai bonds were not loosened until April 1985. When examining
applications from potential samurai issuers, the Ministry of Finance considered the tendency of the
Japanese capital account balance and the liquidity in the country’s economy. “For the actual issuance of
Samurai bonds, the Ministry of Finance set a quota per quarter year, and employed a queue
system”.“Borrowers, if they agreed upon the terms of underwriting, entered the quota by rotation from the
top of the queue”. In 1998, the Ministry of Finance’s close regulatory control was annulled.
Advantages and Disadvantages of Samurai Bonds for Investors
Advantages

Samurai bonds provide access to a diversified and deep pool of capital

Samurai bonds have relatively lower interest rates

Japanese institutional investors can easily invest in Samurai bonds because they are issued in Japan

”Samurai bonds do not have to be left in the custody of securities companies or other institutions”

”As for Japanese institutional investors, foreign firms are very popular because of their high name
recognition and good investment rating; as many of these funds are very conservative, they prefer to
invest in larger companies with international presence”

”Japanese market is not subject to the same variations and market swings as the U.S. and European
markets, giving companies an alternative financing source during economic downturns”
Disadvantages

Samurai bond market has high tax rates and an unclear fiscal environment

Lack of a constant policy remains a serious concern of U.S.-based companies

Lack of flexibility of issuance terms and conditions that create restrictions to use bonds

Companies that have issued samurai bonds have found high administrative burdens placed upon
issuing companies

Complicated issuing procedures and high taxes have made Samurai bond market less attractive than
European markets, and experience slow growth
Conclusion
For a moment its not certainly to invest in Japan at all. Because this was decided after
Standard and Poor's reduced Japan's sovereign rating prospect from stable to negative.
Agus Martowardojo, Finance Minister, said that several other countries in Europe and
America also cancelled their samurai bond issuance.
Japan’s economy is currently in recession and contracting for three consecutive
quarters. According to Japanese government data, the level of their economy fell 1.3
percent in the three months to the end of June. In the previous quarter, Japan’s
economy fell 0.3 percent.
Moody’s also warned that the disruption of electricity distribution in Japan could hinder
economic recovery. A power failure in Japan is following the leaking of the crisis in the
Fukushima nuclear reactor after the earthquake and tsunami. This caused Japanese
reduce the production of electricity from nuclear power to reduce risk and ask people to
limit use of that energy source.
V Bibliography – Internet sources
References
Answers.com. (n.d.) Retrieved March 16, 2011, from http://www.answers.com/topic/samurai-bond-1
^ a b c d e f g h (01.12.11). What is Samurai Bond. Retrieved
from http://pagerankstudio.com/Blog/2011/01/what-is-samurai-bond
^ a b c d e Packer,F., &Reynolds,E. (1997). The Samurai bond market. Current Issues in Economics &
Finance, 8, 1-6. Retrieved from http://o-ehis.ebscohost.com
^ Brian J.T. (n.d.). The international handbook of corporate finance. Retrieved
from http://books.google.com/books
http://fxmadness.com/2009/11/18/general/samurai-bonds/
http://japanjapan.blogspot.com/2008_05_01_archive.html
http://onestop-news.com/moodyss-decrease-debt-rating-of-japan/925965.html/
http://en.indonesiafinancetoday.com/read/4819/Government-Cancels-Samurai-Bond-Issuance