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Yen bonds: Search for liquidity heads to Japan

The rapid expansion of samurai bonds (yen-denominated deals sold by foreign borrowers into Japan) puts them firmly in the coveted list of credit-crunch beneficiaries. Borrowers of all types facing the increasingly expensive prospect of issuing in their illiquid domestic markets are finding an attractively cheap alternative in Tokyo. The bonds are also attractive for individual investors in Japan, offering higher yields than domestic bonds or the interest paid on savings accounts.

"We see this market as being radically, dramatically different," says Brian Lawson, head of syndicate at Nomura. "In the post-crisis period, Japan has clearly suffered far less in terms of an impact on its financial system than other markets."

Traditionally, international issuers have been deterred from the Japanese market by the heavy documentation and disclosure requirements. Until last summer, the market was a niche for US bank holding groups and the odd corporate, such as Ford, which last appeared in 2005. But comparatively favourable conditions in the samurai market mean that more borrowers are now willing to put the work in. It took until only mid-August this year for samurai volumes to surpass those for the whole of 2007 (which totalled ¥2.2 trillion), and Merrill Lynch predicts that total samurai issuance for the year will reach ¥3 trillion ($30 billion) for the first time since 1996.

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