Samurai bonds are yen-denominated bonds sold in Japan by foreign entities and governed by Japanese law. They are popular for accumulating capital for investors and reducing foreign exchange risks. The Market Access Support Facility guarantees Samurai bonds issued by Asian countries with low credit ratings. Other similar bonds include Shogun links, Euroyen bonds, and Uridashi bonds.
A Samurai bond is a bond sold in Japan by an outside source. It is denominated in Japanese currency, the yen, and is governed by Japanese law. Samurai bonds have become increasingly popular over the last 50 years.
One of the purposes of a Samurai bond is the accumulation of capital for investors in Japan. Japanese capital appears to be very attractive to corporations and governments around the world, especially during a period of economic instability. Recent issuers of Samurai bonds include the Royal Bank of Canada, the Republic of Indonesia, and the Philippines.
The recent bond issue by the Philippines provides a useful example of the concept. The Philippine government is in debt, partly because attempts to issue bonds in its own pesos are failing. Samurai bonds are valuable to the Philippines because they increase available capital and financial security; They are attractive to Japanese investors because they pay higher dividends than local bonds.
A Samurai bond can also be used to lessen the risks associated with foreign currency exchange rates. If a company has Japanese operations that it needs to finance with yen, it may want to purchase the yen directly in Japan instead of relying on the continuous exchange of dollars or some other currency. Even a company with no direct need for yen could issue a Samurai bond to take advantage of a favorable exchange rate.
The Japanese government has created an institution called the Market Access Support Facility (MASF) to help Asian governments with low credit ratings to issue Samurai bonds. The MASF guarantees Samurai bonds issued by these countries of up to 500 billion yen. These guarantees are expected to encourage investment and help the Asian economy in general.
A Shogun link, sometimes called a geisha link, is similar to a Samurai link, but is not denominated in yen. This type of link is rarer than a Samurai link. Another variety is a bond denominated in yen but issued outside of Japan. These Euroyen bonds are most commonly found in London. This type of bond is subject to fewer regulations than bonds issued in Japan. Uridashi bonds, like Shogun bonds, are denominated in foreign currency. These are sold to small investors in Japan. They are attractive because they generally offer higher interest rates than Japanese government bonds.
Parallels to the Samurai bonus can be found in all world markets. Foreign companies can obtain Yankee bonds in the United States, Bulldog bonds in London, Kangaroo bonds in Australia, and Matryoshka bonds in Russia.
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