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Foreign issuers flock to the domestic yen market

European and US borrowers have raised more than $20 billion in the domestic Japanese bond market so far in 2003. Issuance is expected to rise further this year as demand increases.

Japan's domestic bond market has been a reliable source of cheap debt for highly rated European and American borrowers since the 1980s. However, issuance fell slightly in 2002 because of investor uncertainty about the direction of the Japanese economy. The market has been significantly busier in the first quarter of 2003. Over the past five months, international borrowers such as German development bank KfW and the Nordic Investment Bank have raised more than $1 billion a week in the market.

Most of the issues have been structured notes linked to the direction of the yen/dollar exchange rates, and interest rate differentials between Japan and the US. These bonds are popular with Japanese investors because they yield more than local domestic bonds.

Some Scandinavian companies such as SEK and SNS Financial Markets are now borrowing more than half their MTN funding requirements in Japan. German Landesbanken are not far behind.

GMAC, GECC, Peugeot, NIB Capital, BMW, Volkswagen, HBOS, France Telecom, the New South Wales Treasury Corp and Ford Credit have all tapped the market so far this year, as have less frequent issuers such as the National Grid, the Hypo Tirol Bank, Teijin Holdings Netherlands and Bradford & Bingley.

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