What is a Sushi Bond

A sushi bond is a bond issued by a Japanese issuer in a market outside Japan and denominated in a currency other than the yen. Very commonly, the issuing currency will be in U.S. dollars. A sushi bond bears a fixed rate of interest. Sushi bonds are primarily issued by Japanese corporations on the Japanese bond market for Japanese investors.

Sushi bonds are especially popular with Japanese institutional investors since these bonds are out of regulation of jurisdiction by the Bank of Japan and thus, do not count toward regulatory legal limits on ownerships of foreign securities holdings. A sushi bond is essentially a colloquial term for a Eurobond or Eurodollar bond from a Japanese issuer.

BREAKING DOWN Sushi Bond

A sushi bond may be sought out by a Japanese company for a number of reasons: to capitalize on new investment opportunities, access cheaper funding alternatives or to refinance foreign currency liabilities. Japanese institutions that wish to add an element of currency diversification to their bond portfolios are logical buyers for sushi bonds.

One key characteristic of a sushi bond is that it primarily occurs as an exchange between two Japanese firms on either side of the transaction. Because the sushi bond is issued by a Japanese investor in a different currency than the Japanese yen, it is considered a foreign currency bond. Sushi bonds are common among Japanese industrial firms and are often acquired by Japanese insurance companies. When a Japanese insurance company buys a sushi bond, they are able to acquire the bond at higher prices but lower interest rates than other prospective buyers may have been prepared to pay.

Advantages of a Sushi Bond

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, often times, more profitable results for the investor or buyer. In other words, they are essentially loopholes that companies, institutions and investors can scale to their advantage. Many regulatory arbitrage practices such as sushi bonds can be found through offshore or foreign market transactions, as the regulatory rules are outside market jurisdictions. 

According to the book, Restructuring Japanese Business For Strategy, Finance, and Management, IBM is a famous example of a Japanese company using sushi bonds to their advantage. Sushi bonds were especially popular in 1985, but became less so as the value of the yen strengthened.