What is Sushi Bond?

The colloquial term sushi bond is used to describe a bond issued by a Japanese company in a market outside of Japan and denominated in a currency other than the yen. The most common issuing currency is the US dollar.

Key points to remember

  • A sushi bond, denominated in a currency other than the yen, is issued by a Japanese company in a market outside Japan.
  • Sushi bonds carry a fixed interest rate, can be short or long term, and are more desirable when the yen is weak.
  • Sushi bond is a type of Eurobond or international bond and most buyers and sellers are Japanese.

Understanding Sushi Bond

A sushi bond is basically a type of Eurobond. In other words, it is an international bond issued in a currency that is not native to its issuer. In this case, the issuer is Japanese and the currency is usually the US dollar.

Sushi bonds carry a fixed interest rate and can be short or long term. They are mainly issued by Japanese companies for Japanese investors. They become more popular investments when the value of the yen is low. In contrast, a bond issued by a Japanese company outside Japan but denominated in Japanese yen is known as a euroyan obligation.

Japanese institutional investors find them attractive because they exist outside the jurisdiction of the Bank of Japan (BoJ) and are therefore not taken into account in the regulations limiting the ownership of foreign securities. Japanese institutions, corporations and insurance companies that want to add some currency diversification to their bond portfolios are logical buyers.

Japanese companies may issue such bonds to take advantage of investment opportunities, to access low-cost financing, or to refinance foreign currency liabilities. The attractiveness of the sushi bond to buyers and sellers rises and falls with exchange rates.

An unusual feature of the sushi bond is that the buyers and sellers are usually Japanese, even though it is a foreign currency bond. Bonds can be purchased directly or through secondary bond markets.

Similarly, a foreign company can issue bonds in Japan in its domestic currency. These are known, inevitably, as shogun bonds.

Since they are foreign bonds, sushi bonds do not count against Japan’s limits on ownership of foreign securities.

Benefits of Sushi Bond

A sushi bond falls under the umbrella of regulatory arbitration practice for Japanese titles. Regulatory arbitrage practices aim to reduce unfavorable regulations prompted by legal norms and produce more favorable and profitable outcomes for the investor or buyer.

In other words, they are loopholes that companies, institutions and investors can use to their advantage. Many regulatory arbitrage practices such as sushi bonds can be found in transactions in offshore or foreign markets, as regulatory rules are outside of market jurisdictions.

Sushi bonds peaked with investors in 1985, but fell off as the value of the yen appreciated.

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