What Is a Euroyen Bond?
Euroyen bond—a form of Eurobond—is a type of debt security that is denominated in the Japanese yen. A Euroyen is issued by a non-Japanese company (outside of Japan) in order to attract non-Japanese investors who want exposure to the Japanese currency.
- A Euroyen bond—a form of Eurobond—is a type of debt security that is denominated in the Japanese yen.
- Euroyen bonds are issued by non-Japanese companies (outside of Japan) to attract non-Japanese investors who want exposure to the Japanese currency.
- A Euroyen bond allows companies to benefit from better interest rates abroad than what is available in their own country, and their small par values make them accessible to more investors.
- Euroyen bonds are usually issued in bearer form, meaning they are unregistered and not subject to automatic withholding tax—it is up to the investor to declare any income earned.
How a Euroyen Bond Works
Euroyen bonds gained prominence around 1984 and in the years following when Japan’s financial markets opened up to foreign investment.Today, these bonds are an efficient way for a non-Japanese company to acquire funding from investors looking for exposure to the Japanese yen—without having to operate in Japan.
Euroyen bonds are issued in the Eurobond market. The Eurobond market consists of bonds that companies issue—outside of their own countries—in foreign currencies. In the case of Euroyen bonds, non-Japanese companies issue bonds in Japanese yen primarily to appeal to investors who desire exposure to the Japanese currency (JPY). Despite the inclusion of "euro" in their names, neither Euroyen bonds nor Eurobonds need to be traded in Europe, by European companies, or with the use of the euro.
Foreign companies may choose to issue Euroyen bonds to avoid regulations when issuing bonds registered with the Tokyo Stock Exchange (TSE). They can also avoid regulation by the Bank of Japan (BOJ), Japan’s central bank. However, Japanese law can limit the number of investors that a Euroyen bond can target.
As with Eurobonds, issuing this type of bond allows companies to benefit from better interest rates abroad than what is available in their own country. Meanwhile, they can appeal to investors because they are often not subject to automatic withholding of tax—Euroyen bonds are usually issued in bearer form, meaning they are unregistered and the Internal Revenue Service (IRS) is not notified about any income earned on them. Euroyen bonds also tend to have small par values, making them accessible to more investors.
Their high levels of liquidity mean that the investor has the confidence that they can actively trade these instruments. The trader is not required to hold a long-term investment, should they want to sell and reinvest. Euroyen bonds and Eurobonds can also be great ways for investors to protect their money if their own country’s currency loses value.
Euroyen Bonds vs. Samurai Bonds
Euroyen bonds are not the only way for foreign companies to issue bonds in the Japanese currency. Samurai bonds also allow foreign issuers to raise funds in Japanese yen. However, the samurai bonds are subject to typical Japanese regulations. These bonds may be more appealing to companies looking to deepen their relationship with Japanese investors.
If a company is only looking for a short-term financing strategy, Euroyen bonds can be more streamlined and easier to set up than Samurai bonds. For example, bonds registered with the TSE must have all documentation printed in Japanese. Euroyen bonds are not bound by this regulation, saving issuers from a potentially laborious and costly translation process.