The Bond Market of Japan: Opportunities and Risks

23 April 2018Satoshi Nakagawa

2nd Largest Bond Market in the World

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Growing steadily

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But, dominated by the government bond

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Stagnant Corporate Bond Market

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4th Largest for Non-Government Bonds

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There are many listed companies, but…

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No. of Listed Companies Market Capitalization(End of Mar 2018)1/ (JPY tri, End of Mar 2018)

Tokyo Stock Exchange - Section 1 2,081 638.6Tokyo Stock Exchange - Section 2 516 9.8Mothers 245 5.4JASDAQ - Standard 702 0.0JASDAQ - Growth 40 11.0Tokyo PRO Market 23 0.4Total 3,607 665.3(Source) Japan Stock Exchange1/ http://www.jpx.co.jp/engl ish/l is ting/co/index.html

2/ http://www.jpx.co.jp/markets/stati s tics -equi ties /misc/tvdivq0000001w3y-att/historical -jika .xl s

Market

Corporate bond issuers (As of End-Sep 2017)

423

Why? – (1) Budget Deficit

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Why? – (2) Subdued borrowing demand

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JPY tri

Why? – (3) Bank Market

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Why? – (3) Bank Market (cont.)

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Why? – (3) Bank Market (cont.)

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Why? – (4) Conservative Institutional Investors

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Consequently,

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Securitization Market

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Breakdown (JPY tri)

RMBS 16.1

CMBS 0.0

CDO 0.5

Lease 0.1

Consumer Loan 0.0

Shopping Credit 1.2

Others 0.5

Total 18.4

(Source) Japan Securities Dealers Association

Opportunities (Issuers’ Viewpoint)

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(1) Low level of interest rate

Non-resident Issues (with JCR Rating) (as of 23 Apr 2018)

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Country Issuer Date JCR Rating Maturity Amount(JPY bil)

CouponRate (%)

Korea Shinhan bank Nov 2017 A+1.5 year3 year5 year

1.316.78.3

0.180%0.360%0.520%

SpainBanco Santander

(Senior Non-Preferred)

Dec 2017 A 5 year10 year

83.712.2

0.568%1.015%

Turkey Sovereign Dec 2017 BBB- 3 year 60.0 1.810%

ChinaChina Eastern

Airlines(Guaranteed)

Mar 2018 AA 3 year 10.0 0.330%

Hungary Sovereign Mar 2018 BBB+ 3 year 30.0 0.370%

US KKR Mar 2018 A+5 year7 year

20 year

25.05.0

10.3

0.509%0.764%1.595%

Mexico Sovereign Apr 2018 A-5 year7 year

10 year20 year

57.224.138.715.0

0.600%0.850%1.050%2.000%

Opportunities (Issuers’ Viewpoint)

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(2) Stable alternative market (For diversification)

Opportunities (Investors’ Viewpoint)

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Basis Swap

Risk

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FX Rate

One more issue

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Unique market

2017 Rank Samurai Bonds (Book runner)

1 Mizuho FG

2 Sumitomo Mitsui FG

3 Nomura

4 Mitsubishi UFJ Morgan Stanley

5 Daiwa Securities Group(Source) Thomson Reuters

2017 Rank All Bonds in Yen (Lead Manager)

1 Mizuho FG

2 Mitsubishi UFJ Morgan Stanley

3 Sumitomo Mitsui FG

4 Nomura

5 Daiwa Securities Group

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The information in this material has been compiled by Japan Credit Rating Agency, Ltd. (JCR) based on the information publicly available and deemed reliable as of the date shown in the front page. No representation or warranty, expressed or implied, is made by JCR as to the accuracy or completeness of the information contained herein.

Thank you. شكرا