Samurai Bond Definition

By
Adam Hayes
Full Bio

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Learn about our editorial policies
Updated September 06, 2022
Reviewed by Julius Mansa

What Is a Samurai Bond?

A Samurai bond is a yen-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations.

Other types of yen-denominated bonds are called Euroyens and issued in countries other than Japan, typically in London.

Key Takeaways

  • Samurai bonds are issued in Japan by foreign companies, denominated in yen, and subject to Japanese regulations.
  • Companies might issue bonds in yen to capitalize on low Japanese interest rates, or to gain exposure to Japanese markets and investors.
  • Risks associated with raising capital in Japanese yen can often be mitigated with cross-currency swaps and currency forwards.
  • Shogun bonds, like Samurai bonds, are bonds issued in Japan by foreign firms, but unlike Samurai bonds are denominated in non-yen currencies.

How a Samurai Bond Works

A company may choose to enter a foreign market if it believes that it would get attractive interest rates in this market or if it has a need for foreign currency. When a company decides to tap into a foreign market, it can do so by issuing foreign bonds, which are bonds denominated in the currency of the intended market. 

Simply put, a foreign bond is issued in a domestic market by a foreign issuer in the currency of the domestic country. Foreign bonds are mainly used to provide corporate or sovereign issuers with access to another capital market outside their domestic market to raise capital.

A foreign issuer who wants access to the Japanese debt market would issue a bond referred to as a Samurai bond. Samurai bonds give issuers the ability to access investment capital available in Japan. The proceeds from the issuance of Samurai bonds can be used by non-Japanese companies to break into the Japanese market, or it can be converted into the issuing company's local currency to be used on existing operations. 

Issuers may simultaneously convert proceeds from the issue into another currency in order to take advantage of lower costs that may result from investor preferences that differ across segmented markets or from temporary market conditions that differentially affect the swaps and bond markets. Samurai bonds can also be used to hedge against foreign exchange rate risk. Issuing companies that operate in an unstable domestic economy might opt to issue bonds in the Japanese market which is largely defined by its stability.

The benefit of Samurai bonds to investors in Japan is that they are not exposed to currency risks of purchasing bonds in another currency.

Benefits of a Samurai Bond

Samurai bonds are denominated in Japanese yen. Thus, Samurai bonds give a company or government an opportunity to expand into the Japanese market without the currency risks normally associated with a foreign investment since the bonds are issued in yen. 

The bonds are subject to Japanese bond regulations, attracting investors from Japan and providing capital to foreign issuers. Since investors bear no currency risk from holding these bonds, Samurai bonds are attractive investment opportunities for Japanese investors.

Example of a Samurai Bond

In 2017, to accelerate Indonesia’s infrastructure development program, the Indonesian government issued three-, five-, and seven-year Samurai bonds worth 40 billion yen, 50 billion yen, and 10 billion yen, respectively.

U.S. issuers make up about a third of outstanding Samurai issuers, as of 2017. U.S. issuers cannot deduct their interest costs for newly issued bonds, and investors are subject to a 30% withholding tax on their coupon payments.

Samurai Bonds vs. Shogun Bonds

The Samurai bond is not to be confused with the Shogun bond, which is issued in Japan by a non-Japanese issuing entity but denominated in a currency other than the yen.

Other foreign bonds include Kangaroo bonds, Maple bonds, Matador bonds, Yankee bonds, and Bulldog bonds.