Opportunity knocks for international banks as Japanese corporates look abroad for bond funding
Rupak Ghose
Japanese bond yields have surged in recent days to levels not seen in decades. At much the same time, Treasury yields have eased in anticipation of the US Federal Reserve cutting overnight interest rates.
If you’re a Japanese borrower, the potential implications in terms of issuance plans are clear – and finance directors of large Japanese businesses will be watching like hawks, calculating interest rate differentials and FX hedging costs.
If they aren’t, I am sure an army of DCM bankers from international banks will be doing their best to convince Japanese borrowers to issue overseas. After all, international distribution is where non-Japanese banks have a competitive advantage over their local rivals when it comes to covering Japanese clients.
For decades, the yen carry trade was one of the givens of global financial markets, whereby international investors borrowed in yen and invested those proceeds outside Japan. Even local players – most notably SoftBank – benefitted handsomely from that process.
Going abroad
But 2025 is seeing the traffic move the other way, with large Japanese corporates looking to issue debt in other major currencies.
Given the shape of the respective yield curves – the differential between the currencies is now highest in overnight interest rates – demand by Japanese corporates to finance in overseas currencies is greater in longer durations.
And the numbers paint a clear picture. While Japanese corporate bond issuance in foreign currencies has slowly become increasingly important over the past decade, it now takes on the local yen market in size.
According to LSEG data, Japanese companies in the first 10 months of the year have raised US$130bn in foreign currency bond and loan deals, up around 80% in what will likely be a record-setting year. In comparison, this year has seen a decline in both bond and loan volumes in yen, with issuance well below previous highs.
Japan’s market share of the US dollar and euro issuance by Asia Pacific corporates has doubled from 14% in 2019 to 28% in 2025. Australia and South Korea have also doubled their percentage, albeit from lower bases, as issuance from Chinese corporates has collapsed due to the real estate slump.
Not just rates
In addition to changing interest rates levels there are four other reasons why issuance in other currencies by Japanese corporates has surged and the trend is likely to continue in the near term.
First, cross-border investing. Japan still has major exporters with large international subsidiaries. Active issuers this year include auto manufacturers like Nissan Motor and tech firms like Kloxia. Many major Japanese banks are also large internationally and raise US dollar bonds.
So, of course, does SoftBank, which needs to fund its huge AI investments stateside. SoftBank did several rounds of US dollar and euro funding with tranches of medium-term bonds earlier this year. A few weeks ago, it followed up with a 35–40-year jumbo US$17.5bn hybrid bond backed by its shares in Nasdaq-listed ARM Holdings. All the deals had a wide range of US and European banks involved, together with Mizuho.
Second, the breadth and depth of the US dollar market – and to a lesser extent the euro – is unmatched, especially for very large issues. In July, Japanese telecoms company NTT set a record for an Asian corporate in international bond markets, raising US$17.7bn-equivalent in US dollar and euro tranches. It was one of the largest corporate issues this year in any jurisdiction.
Third, M&A is heating up in Japan like other parts of the world. According to LSEG statistics, M&A volumes in Japan have more than doubled this year compared with a 42% increase worldwide.
Japanese regulators are much more shareholder-focused and US private equity groups have been one of the big buyers of companies. The limited high-yield bond market onshore in Japan makes it more likely that leveraged buyouts will be funded in the US currency.
Finally, questions about the potential end of American exceptionalism are making US dollar-based investors look for increased diversification. With the US markets looking frothy, private credit cockroaches appearing and increased concern about the debt binge that tech giants are on, especially the likes of Oracle, high-quality international issuers from safe jurisdictions like Japan are in demand.
With volumes in most DCM markets slowing after years of expansion, US and European banks are looking for new opportunities. The onshore Japanese market is dominated by Mizuho Financial Group, Sumitomo Mitsui, Daiwa Securities and Nomura, with the only semi-overseas bank on the same level being the joint venture between MUFG and Morgan Stanley. That is unlikely to change much. But the increased demand for issuance in overseas currencies definitely gives international banks a valuable opening.