Definition
A Sushi Bond is a debt instrument issued by a Japanese-registered company in a currency other than the Japanese yen. Although these bonds are issued in foreign currencies, they are primarily targeted at the Japanese institutional investor market. The term “Sushi Bond” is derived from the practice where Japanese companies issue these bonds to diversify their funding sources while also appealing to domestic investors familiar with these companies.
Examples
- Toyota Motors Corp issues a bond denominated in U.S. dollars, aimed at Japanese insurance companies and pension funds.
- Mitsubishi Corporation releases a Euro-denominated bond specifically for Japanese banks looking to diversify their portfolio with international securities.
- Sony Corporation issues a bonds in British pounds targeted to domestic Japanese institutional investors wishing to hedge against currency risk while remaining invested in domestic enterprises.
Frequently Asked Questions (FAQ)
Q1: Why would a Japanese company issue a bond in a foreign currency?
- Answer: Japanese companies may issue bonds in foreign currencies to achieve lower borrowing costs, diversify their investor base, take advantage of favorable foreign interest rates, or hedge against currency exchange risk.
Q2: Who typically invests in Sushi Bonds?
- Answer: Sushi Bonds are primarily aimed at Japanese institutional investors such as insurance companies, banks, pension funds, and mutual funds.
Q3: What are the risks associated with Sushi Bonds?
- Answer: The main risks include currency risk given they are issued in foreign currencies, interest rate risk, and the credit risk associated with the issuer.
Q4: How do Sushi Bonds differ from Samurai Bonds?
- Answer: While Sushi Bonds are issued by Japanese companies in currencies other than the yen, Samurai Bonds are yen-denominated bonds issued by non-Japanese entities targeting the Japanese market.
Q5: Can individual investors buy Sushi Bonds?
- Answer: While they are primarily for institutional investors, individual investors might be able to purchase Sushi Bonds through bond funds or other financial products offered by brokerage firms.
Related Terms
- Eurobond: A bond issued in a currency other than the home currency of the country or market in which it is issued.
- Samurai Bond: Yen-denominated bonds issued in Japan by non-Japanese companies, organizations, or governments.
- Currency Risk: The potential risk of loss when bonds or other investments change in value due to changes in currency exchange rates.
- Foreign Currency Convertible Bond (FCCB): A type of convertible bond issued in a currency different from the issuer’s domestic currency, which offers possible conversion into equity.
- Global Bond: A bond that is issued and traded in various international markets without being confined to a single country’s financial jurisdiction.
Online References
- Investopedia: Understanding Sushi Bonds
- Reuters Finance: Japanese Corporate Bonds
- Japan Exchange Group
Suggested Books for Further Studies
- “The Handbook of Japanese Bonds” by Takeo a Harada
- “Japanese Finance: Markets and Institutions” by Margaret M. Pearson
- “Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions” by Joshua Rosenbaum and Joshua Pearl
Accounting Basics: “Sushi Bond” Fundamentals Quiz
### What distinguishes a Sushi Bond from other types of bonds?
- [ ] It is only issued to individual investors.
- [x] It is issued by Japanese companies in non-yen currencies targeted at Japanese institutional investors.
- [ ] It must be denominated in yen.
- [ ] It always offers a fixed interest rate.
> **Explanation:** Sushi Bonds are specifically issued by Japanese companies in foreign currencies and are primarily aimed at Japanese institutional investors.
### Why might Japanese companies opt to issue Sushi Bonds?
- [ ] To avoid reporting requirements in Japan.
- [ ] To inflate their local currency value.
- [x] To achieve lower borrowing costs and diversify their shareholder base.
- [ ] To comply with Japanese financial regulations on international borrowing.
> **Explanation:** Japanese companies issue Sushi Bonds to achieve lower borrowing costs, diversify their investor base, benefit from favorable foreign interest rates, or hedge against currency risk.
### Which investor group is the primary target for Sushi Bonds?
- [x] Japanese institutional investors
- [ ] Individual retail investors globally
- [ ] U.S. institutional investors
- [ ] Eurozone family offices
> **Explanation:** The primary target for Sushi Bonds is Japanese institutional investors like insurance companies, banks, and pension funds.
### What is the primary risk associated with investing in Sushi Bonds?
- [ ] Political risk
- [ ] Domestic interest rate volatility
- [x] Currency risk
- [ ] Environmental risk
> **Explanation:** The chief risk associated with Sushi Bonds is currency risk since they are issued in foreign currencies.
### How does a Sushi Bond compare to a Samurai Bond?
- [x] Sushi Bonds are issued in foreign currencies by Japanese companies; Samurai Bonds are yen-denominated.
- [ ] Both are issued by non-Japanese entities.
- [ ] Both are yen-denominated.
- [ ] Sushi Bonds can only be issued by governmental entities.
> **Explanation:** Sushi Bonds are issued by Japanese companies in foreign currencies, whereas Samurai Bonds are yen-denominated and issued by non-Japanese entities targeting the Japanese market.
### Which of the following items are utilized to hedge against the currency risk of a Sushi Bond?
- [x] Currency derivatives
- [ ] Equity investments
- [ ] Commodity hedging
- [ ] Municipal bonds
> **Explanation:** Investors use currency derivatives, such as futures and options, to hedge against the currency risk posed by Sushi Bonds.
### Can individual investors access Sushi Bonds directly?
- [ ] Only if they reside in Japan.
- [x] Only generally through bond funds or brokerage products.
- [ ] No, they are restricted to institutional investors globally.
- [ ] Yes, they have the same access as institutional investors.
> **Explanation:** Individual investors typically access Sushi Bonds through bond funds or other financial products offered by brokerage firms, rather than direct investment.
### What is a Eurobond in comparison to a Sushi Bond?
- [ ] A Eurobond can only be denominated in Euros.
- [ ] It must be issued within Europe only.
- [x] It is a bond issued in a currency other than the home currency of the country where it is issued, but not targeted specifically.
- [ ] It is designed for retail European investors only.
> **Explanation:** Eurobonds are issued in a currency other than the home currency of the country where they are issued, similar to Sushi Bonds which are non-yen currency bonds by Japanese companies.
### What benefits do Japanese institutional investors typically see in Sushi Bonds?
- [ ] Compliance with only national regulations
- [ ] High liquidity in local markets
- [x] Diversification and potential currency hedging
- [ ] Fixed currency exchange rates
> **Explanation:** Japanese institutional investors benefit from Sushi Bonds through diversification of their portfolios and the possibility of currency hedging.
### In what kind of market environment are Sushi Bonds typically seen as favorable?
- [x] Low interest rate foreign markets
- [ ] High domestic inflation
- [ ] Strong domestic currency only
- [ ] Stable domestic government policy only
> **Explanation:** Sushi Bonds are favorable in low foreign interest rate environments, offering Japanese companies potentially lower borrowing costs than domestic options.
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