Sushi Bond

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 U.S. dollar.

Understanding Sushi Bond

A sushi bond is essentially a type of Eurobond. That is, 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 U.S. dollar.

Sushi bonds bear a fixed rate of interest and can be short-term or long-term. They are primarily issued by Japanese corporations for Japanese investors. They become more popular investments when the value of the yen is weak. By contrast, a bond issued by a Japanese company outside of Japan but denominated in Japanese yen is known as a euroyen bond.

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

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

One unusual characteristic of the sushi bond is that both the buyers and the sellers are usually Japanese, even though they are foreign currency bonds. The bonds can be bought directly or through the secondary bond markets.

On a related note, a foreign company can issue bonds in Japan in its home currency. These are known, inevitably, as shogun bonds.

Sushi Bond Advantages

A sushi bond falls under the umbrella of regulatory arbitrage practice for Japanese security holdings. Regulatory arbitrage practices aim to reduce unfavorable regulation prompted by legal standards and produce more favorable, and more profitable, results for the investor or buyer.

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

Sushi bonds hit their height of popularity among investors in 1985 but became less so as the yen strengthened in value.