Samurai Bond

A samurai bond is a yen-denominated bond issued in Tokyo by non-Japanese companies, and is subject to Japanese regulations.^[1]

These bonds provide the issuer with an access to Japanese capital, which can be used for local investments or for financing operations outside Japan.^[2] Foreign borrowers may want to issue in Samurai market to hedge against foreign currency exchange risk.^[3] Another intention may be simultaneously exchanging the issue into another currency, in order to take advantage of lower costs.^[3] 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.^[3]

Samurai Bond Market was opened in 1970 when the Japanese Ministry of Finance authorized supranational and highly rated foreign government entities to issue Samurai bonds within certain size and maturity restrictions.^[4]

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.^[2]
• 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.^[2]
• 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.^[2] 

Disadvantages

• Samurai bond market has high tax rates and an unclear fiscal environment.
• Lack of a constant policy remains a serious concern of US-based companies.^[2]
• 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.^[2]
• Complicated issuing procedures and high taxes have made Samurai bond market less attractive than European markets, and experience slow growth.^[2]