When it comes to corporate wellness, it seems like Japan is getting ahead of itself. Last month, Japanese companies issued the most bonds in three years, and some raised cash ahead of schedule. They did this because they believe that large-scale bond buying by the central bank means that interest rates are almost certain to rise.
According to data tracked by Nomura Securities, in April, Japanese corporations issued ¥1.2 trillion ($11.8 billion) of bonds, which are the most in any month since April 2010 and the sixth-most in the past decade. The bonds issuers included smaller manufacturers, as well as retail store operator Seven & i Holdings Co. (3382.TO -1.14%) and auto giant Nissan Motor Co. (7201.TO +5.60%). But what of the buyers?
Rates are already ticking higher from ultra low levels, which means that some companies are issuing more debt than they first planned to yield, and hungry institutional investors are seeking better returns than Japanese government bonds can offer. Some of the buyers have said that they intend to use the funds to expand their businesses, while others are going to refinance existing debt.
For example, Tobu Railway Co. (9001.TO -0.70%) rushed to sell a ¥10 billion bond just two weeks after the Bank of Japan announced its newest monetary-stimulus programme. Tsutomu Yamamoto, manager at Tobu’s finance and accounting department, explained, ‘We thought it was better to raise funds sooner rather than later’ and this is exactly the kind of thinking and behaviour the Japanese government and central bank intended to create.
By vowing to defeat deflation and reignite the economy through broad-based asset purchases known as quantitative easing, the government caused Tobu – a major railway operator in the Tokyo area – to waste no time in issuing 10-year bonds even though the company doesn’t need the funds until June, when existing bonds are due. This is because Japan’s new economic policy, dubbed “Abenomics,” is likely to lead to higher interest rates later. Masanori Azuma, head of debt capital markets at Nomura, noted that companies believe there won’t be a better time to issue debt. ‘Frankly, there won’t be anything bigger than this’ easing, he said.