What is a Samurai Bond?

Leo Zimmermann
Leo Zimmermann

A Samurai bond is a bond sold in Japan by an outside source. It is denominated in Japanese currency, the yen, and governed by Japanese law. Samurai bonds have becoming increasingly popular over the last 50 years.

Man climbing a rope
Man climbing a rope

One purpose of a Samurai bond is the accumulation of capital from investors in Japan. Japanese capital appears to be very attractive to corporations and governments worldwide, 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 for 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 decrease risks associated with exchange rates in foreign currency. If a company has Japanese operations that it needs to finance with yen, it may wish to acquire the yen directly in Japan rather than relying on continual exchange from dollars or some other currency. Even a company with no direct need for yen might 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 poor credit ratings to issue Samurai bonds. The MASF guarantees Samurai bonds issued by these countries up to 500 billion yen. It is hoped that these guarantees will encourage investment and help the Asian economy at large.

A Shogun bond, sometimes called a geisha bond, is similar to a Samurai bond, but not denominated in yen. This type of bond is more rare than a Samurai bond. Another variety is a bond that is denominated in yen but issued outside of Japan. These Euroyen bonds are found most commonly 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 smaller investors in Japan. They are attractive because they typically provide higher interest rates than Japanese government bonds.

Parallels to the Samurai bond can be found throughout the world's markets. Foreign companies can get Yankee bonds in the United States, Bulldog bonds in London, Kangaroo bonds in Australia, and Matrioshka bonds in Russia.

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