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A new dawn awaits Japan’s borrowers

Four years after Abenomics was implemented, and following ratings downgrades in 2015, prospects are beginning to improve for Japan’s top credits. With the financial year starting in April there are reasons to be positive. Foreign investors are returning to the Japanese debt market, the economy is showing some improvement and companies are ramping up their funding targets. GlobalCapital sat down with senior officials from some of the most highly regarded issuers in Japan, as well as respected bankers, to find out about their fundraising plans and how they will approach the debt markets.


Participants in the roundtable were:

Masanori Kazama, vice-president, international DCM, Nomura 

Kenji Kanamoto, director, capital markets and funding division, treasury department, corporate group, Japan Bank for International Cooperation (JBIC)

Hiroyuki Kawae, manager, finance management section, accounting and finance department, general affairs and accounting division, East Nippon Expressway Company (E-Nexco)

Hirobumi Kobayashi, director of finance, Japan Finance Organisation for Municipalities (JFM) 

Ryohei Matsumoto, assistant director, division of financing, treasury department, Development Bank of Japan (DBJ) 

Mototsugu Matsuoka, director, division of financing, treasury department, DBJ

Saki Nagakura, deputy assistant director, capital markets division, Japan International Cooperation Agency (JICA) 

Masayasu Sugahara, director, bond section, budget division, bureau of finance, Tokyo Metropolitan Government (TMG) 

Satoko Tanaka, director, capital markets division, JICA

Tatsuya Yasuda, executive director, head of international DCM, debt capital markets department, Nomura 

Toby Fildes, moderator, GlobalCapital

Rashmi Kumar, moderator, GlobalCapital Asia 

: The world is full of uncertainty at the macroeconomic and political levels — we have a new US president, the Fed looks set to continue on its tightening course, European elections could trigger existential crises, QE is blurring fundamentals while its withdrawal could create damaging tantrums. Global growth continues to disappoint (with a few honourable exceptions) and the jury remains out on the success of Abenomics in Japan. Yet capital markets are enjoying exceptionally bullish conditions, with issuers finding strong support when raising bonds in nearly every market in the world. Japanese issuers too have had an excellent 2017 so far. But can it, and should it, last?

Tatsuya Yasuda, Nomura: Firstly, when we look back at the markets in 2016, it was a similar situation. Up until March of last year, the stock price in China had fallen, and there were various types of risks such as oil price and emerging products etc. So we were worrying about how it would be after April, when this roundtable had been set. 

Therefore, the atmosphere in that discussion was full of anxiety, and it concluded with everyone feeling concerned about the market. However, in reality, Brexit had already been scheduled for June and the US election for November. 

We also assumed that the federal funds rate would be raised at some point. Although we had these concerns, the market started well after April, which was encouraging. Where we stand in 2017, the market also has concerns about how [Donald] Trump will make a move, what he is going to do in the long run, and how the elections in Europe will be. Also, I have to note the expected hikes of US interest rates. 

Finally the 2016 market ended with a good result, and that was because there was still a lot of QE money in the market, which was a great source of demand for investment. In fact, the capital markets recovered a week after Brexit last June. 

Although Trump was elected as US president, interest rates have risen significantly because of the market’s expectation of potential inflation. The capital market has again reopened quickly. For 2017, we are seeing a similar situation where money will stay in the market, and the bond market will remain favourable despite uncertainty and concerns. 


Mototsugu Matsuoka, DBJ: I would like to mention two points. I agree that there is uncertainty all over the world. However, from the point of view of an issuer that is supported by the Japanese government, apart from the evaluation of Abenomics, the fact is that the Abe cabinet has been in place for a long time. 

I would say it is the most stable administration in the world at the moment. Unfortunately, Japan’s current rating is low, but when it comes to risk-off situations, the money pours into Japan.

Another point is what we are experiencing right now. In 2016, Japanese investors were supporting bonds issued by Japanese agencies. They were mostly Japanese life insurance companies or regional banks that are now facing up to rising US interest rates. It seems that these supporters are facing significant valuation losses. Therefore, over the next year in the Japanese calendar, starting from April, our concern is whether they will come back to invest in us again. 

However, on the other side, it is very encouraging that the US market and euro market have been really active.

Satoko Tanaka, JICA: It has already been mentioned by other participants, but I agree that the uncertainty will remain. However, it is an opportunity for us to introduce our activities and JICA’s credit more widely, especially in the dollar market. 

We have only issued twice in the past and our name is not well known in the market yet, so we would like to sell our name properly from now on. And regardless of the markets, in whatever situation, JICA thrives to keep working on activities that will allow us to be reliable as an investment. 


Hiroyuki Kawae, E-Nexco: In the short run, I think conditions will remain good for a while. However, I have a feeling that investors’ views on interest rates are changing slightly. If I talk about last year, I think it could be divided into two. 

The first stage would definitely be from the introduction of negative interest rate policy in February 2016 to the Bank of Japan’s Comprehensive Assessment published in July 2016. During this period, the negative interest rate was really digging deep, and investors also realised this. 

In that kind of a situation, domestic bonds became the key commodities. There was incredibly high and excess demand that came to the fore. After the monetary policy meeting in July, considering the fact that investors had an outlook for rising interest rates compared to the past, there seems to be less demand in 2017 when compared to the first stage. However, in the short run, I assume there won’t be that much loss of demand.

Hirobumi Kobayashi, JFM: As for the interest rate, I have the same view as E-Nexco. It was just one week before Brexit that I became the director of capital markets, and I remember at that time, the negative interest was digging really deep, and rated bonds were very favourable, yielding positive returns. 

On the other hand, after Trump’s inauguration, the long-term interest rate picture is turning positive and I feel that the situation has been changing. It seemed hard to have a clear outlook this year, so I guess it will not make a significant change to next year. Therefore, in such a situation, I believe that we have to be flexible with our bond issuance and listen to the market.  

Kenji Kanamoto, JBIC: It is a matter of whether the current favourable situation will last or not. I would like to stay optimistic. As Mr Matsuoka mentioned before, JBIC too has been issuing foreign bonds guaranteed by the government of Japan. It is good for us that the current Japanese government is stable. 

On the other hand, like Mr Yasuda has mentioned about last year. And this year, QE, monetary easing, is resulting in a favourable situation. The paradigm may change if cash flows are changed by the so-called tapering. It could also affect the current situation of expanding swap spreads.

From a sales outlook, interest rates, as well as Treasuries in the market aren’t looking like they will improve. But it is actually very favourable for issuers of dollar bonds. We are paying close attention to how long this micro-economy will last, and how QE will change.

Masayasu Sugahara, TMG: In Japan, a new monetary policy framework, such as negative interest rate policy and QQE with yield curve control, was introduced in 2016, and we realise that it was a highly volatile market environment compared with the year before. For the next fiscal year, we recognise that there are many uncertainties such as the policies of the new president of the US, political uncertainties in Europe, the direction of the monetary policy in each country, etc. 

As for the Tokyo Metropolitan Government, we are planning to issue yen-denominated bonds and foreign currency-denominated bonds next fiscal year. But we will continue to value communication with investors to try to understand their needs and market trends, while we will carefully manage our debt issuance even under such market conditions to achieve stable funding.

: What has it been like to issue this year compared to previous years? What are investors asking you and what are their concerns about the macro environment?

Kanamoto, JBIC: I only joined this department recently, so I haven’t experienced very far back. However, looking back to 2015, there were really tough moments after autumn and it was a period to wait. After that, at some level it started to go smoothly, which was better than expected. Many people say it was pretty good or improving after January 2016 and the trend is continuing so far.

Matsuoka, DBJ: I’d like to speak about the rating. We figured out that most of the investors we lost after our downgrade to single-A were central banks. However, we feel that these investors are returning gradually to buy shorter-term bonds, like the five years bonds we issue. In the end they think our bonds are fairly priced, so those investors who once left us because of the rating have actually come back. Having said that, last year was good. 

Tanaka, JICA: Compared to other participants today, the amount of issuance by our organisation is quite small — the yen bonds are around ¥50bn-¥60bn (around $500m). In that sense, we are less likely to be affected by the market. 

Compared to other organisations, we didn’t have much of a hard time, which is perhaps why investors in the market might find us a rarity. As DBJ has previously mentioned, our bonds also follow ICMA’s social bond guidance. We issued domestic social bonds twice after the guidance was published, and we had a good response on that side as well.

Kobayashi, JFM: I feel that it became more difficult to issue bonds after Japan was downgraded to single-A. In FY2016, we issued benchmark bonds twice in April and October in 2016. In April, we were very worried about demand but we actually succeeded in the end. Also, as we don’t have a government guarantee, we feel that we have to take on an agile bond issuance management. 

From that point of view, on issuing bonds in October, it had been said that the scheduled US presidential election might cause volatility with its result. So it turned out to be good timing to issue bonds before that. It attracted new investors like domestic local banks and life insurance companies. One more thing we could say is that domestic investors are experiencing a hard time to manage domestic bonds. They are more likely to be encouraged to invest in foreign bonds.

Kawae, E-Nexco: Looking back at last year, there was really nothing to buy in the first half, according to our investors. Because investors tend to demand positive interest, demand was really high. As it got closer to the end of the year, especially with the most recent ¥30bn bond we issued in January, there was not much surplus demand. 

The interest rate, if anything, was higher, and from that point of view, I think investors’ reaction and interest have been greatly changing. Our main investors are local banks, and when we talk with them, all they say is that the interest rate is too low to buy, so it is hard to get their attention. 

To alter this situation, we often agree that it wouldn’t be possible to gain income unless we manage to issue foreign bonds or longer tenors. The term of the bonds we issue is usually five years, so if we stick with the current interest rate of a five year bond, it won’t meet investors’ demands. 

To get the attention of local banks, we will have to issue foreign bonds and swap to yen. That way, we can meet the demands of investors from local banks. We are starting this strategy now.


Yasuda, Nomura: In the last two years, the big event for Japanese issuers has been the downgrade of Japan’s sovereign rating to single-A by S&P and Moody’s. The contents of the order book in recent deals has changed a lot. Japanese SSA bonds had such high liquidity that they were well sold to foreign central banks and public institutions. 

However, after the downgrade to single-A, the investor base has changed dramatically. Instead of central banks, Japanese investors greatly supported deals recently, especially long term bonds. This support has been really huge since last year. Even though there were unfavourable events for Japanese issuers, the investor base has changed in a good way to support bond issuance.

Sugahara, TMG: Regarding the local municipal bond market in Japan, from the influence of BOJ’s negative interest rate policy, since March last year it was necessary to manage pricing by also setting minimum interest rates for 10 year bond issues. 

In the current situation, long term interest rates have recovered to positive figures, and 10 year bonds are also returning to spread pricing. During this time, we believe we were able to provide an environment where investors can purchase 10 year bonds with confidence by providing both pricing methods — spread pricing and minimum interest rate. 

On the other hand, in terms of the macro environment, we recognise that there are many uncertainties ahead, such as the US policy to be revealed by president Trump, and the elections in Europe.

: Are you optimistic about the Japanese economy, and are the right steps being taken to deliver consistent and sustainable economic growth?

Matsuoka, DBJ: In my opinion, the Abe cabinet’s emphasis on how to raise salaries by promoting buyer interest in Japan will assist the economy. I personally think that it is a hope for the future economy.

Kawae, E-Nexco: I would like to say that I want to be optimistic, but I think I am neutral. The reason is that whether we are taking the right steps or not, monetary easing policy is the one cause of overcoming deflation, so I think it is working in a good way.  

However, it is actually affected by the politics and economic events inside and outside the country. I think we cannot rely solely on the monetary easing policy, though it was a step in the right direction. 

There are various opinions about the monetary easing policy. As we see in the newspapers, it seems quite hard to have a surplus primary balance for the year 2020. There is the Fiscal Theory of Price Level by Christopher Sims as a recent trend, and by leading a massive fiscal stimulus, some are hoping to activate the Japanese economy. 

But, to be honest, I am not sure of its effectiveness. We would also like to see a good result in the growth strategy as well as on salary matters. What the Japanese society is facing right now is a decreasing birth rate and an aging population. Measures such as gender equality in employment, or work-style reform, are on the table. Including all that, I expect the government to take a growth strategy that helps improve the productivity of the country as much as possible. 

I think there is a really good vision, and when structural reforms are enacted, we could be optimistic on the outlook of the Japanese economy. 

Sugahara, TMG: With the implementation of Abenomics, both nominal and real GDP has increased compared to before the administration was established. And with steadily improving employment and income environments, such as an increase in the number of employed people and wage increases, we recognise that the virtuous cycle of economics is expanding. 

With respect to the tax revenue in Tokyo, the tax revenue is expected to decrease in 2017 compared with the previous fiscal year (FY2016 ¥5.2tr to FY2017 ¥5.1tr), but is expected to remain more than ¥5tr for the third consecutive year. In the future, we will carefully manage our bond issues while paying attention to political uncertainties overseas, and the influence of the volatility of the financial market.


Kanamoto, JBIC: I see the Japanese economy optimistically. There is of course the “three arrows”, and also opportunities in the future. The current government is trying to ease regulation to keep the economy stable. Even for the controversial areas that lead to arguments it seems that the government is really making an effort and being brave. 

For example, in agriculture. In that sense, even if that was a difficult topic to start off, the government has a clear vision to work on and it is showing its intention clearly by taking the right steps, so I expect good results from that.

: Does anything more need to be done?

Matsuoka, DBJ: I would like to point out it is a breakthrough to support women’s social progress, which will lead to more diversity and innovation in Japanese companies and compensate for the shortage of labour force in various industries.

This is a bit of promotion for our firm though, because we have been assisting female entrepreneurs, even if for small businesses. So I believe this will be a breakthrough. It is something that is already starting to happen, however, it is important that it becomes second nature. 

: What has been the true impact of Abenomics on your capital raising ability in domestic markets?

Tanaka, JICA: We don’t really have that much difficulty in issuing bonds. This is largely thanks to the monetary easing policy. 

Yasuda, Nomura: Abenomics has different phases. It was introduced when the Japanese economy was really bad. So, at first, it was a policy for recovery from a bad economic situation. The first and second arrow worked for this purpose. 

At the first stage, QE was implemented, which provided a steady supply of money to the market, and it was completely effective in terms of activating the capital market. We are now at the next stage, where we must pursue a growth strategy. It is really difficult to consider how best to proceed. In the market where the first and second arrows worked, too much liquidity might have led to excessive investment, which would have a big impact on market conditions. 

When the economy recovers from the worst, and the government shifts gear to a growth strategy, I expect Abenomics to impact on the market in a different way. In other words, the investment will be driven by heathier and sounder investment appetite, not abundant liquidity in the market. 

At that point, it will become more important for us to monitor how investors evaluate the real value and make investment decisions. Changes in the type of investment opportunities that investors seek will also probably be seen. 

Sugahara, TMG: As you know, the second Abe cabinet, which was established in December 2012, launched the three arrows of economic and fiscal measures, of which “bold monetary policy” was identified as the first arrow. 

Following this trend, the Bank of Japan introduced quantitative and qualitative monetary easing. Although the framework of negative interest rate policy and yield curve control policy has been added since then, the quantitative and qualitative monetary easing continues and it seems that the interest rate level will remain steady and low as long as the BOJ’s control continues to be effective. 

From the perspective of financing capacity in the domestic market, since the introduction of the negative interest rate policy in particular, an issuing environment that has never been experienced continues. We will continue to value communications with investors to try to understand their needs and market trends, while we will carefully manage our debt issuance even under such market conditions to achieve stable funding. 

Also, as you know, from October 2015, Abenomics moved to the second stage, aiming to realise a “100m total active society”, so the three arrows were strengthened to become a “new three arrows”. We are working towards realising a virtuous cycle of growth and distribution and recognise that results will be steadily revealed. 

As for the impact on TMG, despite a decrease in tax revenue compared to the previous year, the high level of tax revenues are expected to be maintained. From the viewpoint of financing capacity in the domestic market, in light of such high tax revenues in the 2017 budget proposal, we limited the issue amount of TMG bonds and decided to keep the surplus capacity for the future.

: Has the depth of the bid at home meant there is less focus on developing the international investor base?

Matusoka, DBJ: Regarding the changes to the domestic market, it didn’t expand intentionally, it just turned out to be the case that it did. We issue non-government guaranteed bonds in the domestic market, or so called FILP agency bonds. We are aware of the increasing number of investors from overseas. 

This is something new for us, as it didn’t happen in the past. While the interest rate of domestic bonds decreased due to the negative interest rate policy set out by Bank of Japan, the rate for our bonds is still positive. That is why more and more foreign investors rush to buy our bonds as an alternative to JGBs. This is a really pleasing fact for us.

At DBJ, we would like to expand the investor base steadily, and occasionally we gain overseas investors due to situations like the one we have at the moment. When overseas investors come into the domestic bond market, because they are very generous with ticket sizes it greatly helps momentum. This is helpful not only for the roadshow inside the country, but also the roadshow for domestic bonds for overseas investors. 

Yasuda, Nomura: The overseas investor base is much larger and deeper compared to the domestic market. Foreign currency bonds have been at the centre of most international investors’ portfolios. 

As discussed earlier, Japanese investors are gradually increasing their dollar portfolios. Overseas investors have come into the yen bond market as well. They don’t limit themselves to the currency of their portfolio; rather they use currency swaps for investment. Investors are more flexible in swaps or derivatives to seek more investment opportunities. 

Kobayashi, JFM: We issue agency bonds, domestic bonds with 10 year terms, every month. There are overseas investors here and they are coming to the market regularly.

I have also gone overseas to do investor relations [IR] for foreign bonds, however investors kept asking me about domestic bonds all the time, so I wondered which IR that was after I came back. Since the IR, there have been regular investors in the market with good amounts. So we feel that overseas investors are looking at domestic markets as well. 

In addition, we also raise a total of ¥2tr throughout the year, which includes government guaranteed bonds. We think that it is essential to have a stable investor base for rock solid fundraising. Considering this, we also think it is important to work on the promotion of domestic bonds when we visit overseas for foreign bonds IR.

Sugahara, TMG: At TMG, we place emphasis on the stability of financing with regards to bond issuing. We issue 10 year bonds on a monthly basis, which is a core term in the local bond market, to investors in the domestic market, while also trying to diversify the investor base to ensure the stability of financing. 

On the other hand, we also issue foreign bonds to diversify funding means, diversify risks, and reduce funding costs. In order to issue foreign currency denominated bonds under a more stable investor base, the dollar-denominated bonds issued in May last year were issued under 144A/Reg S format rather than the Reg S only format applied in previous years, in order to capture US investors that could not be accessed before then. 

We are working to strengthen the overseas investor base by conducting overseas IR twice a year, every spring and autumn.

: What are the panel’s funding plans and how do issuers plan to go about achieving them. What currencies, maturities, types of bonds, specific investor bases are you targeting?

Matsuoka, DBJ: This applies to everyone I guess. Our budget plans are under deliberation in the National Diet [legislature], so it depends on approval. Basically, for Japan government guaranteed international bonds it would be the same level as the current year of ¥200bn, and non-guaranteed bonds including both domestic and international issues would be ¥500bn, which increased from last year. 

I reckon the task for domestic or foreign bonds is how to raise awareness of non-guaranteed bonds. For domestic bonds, we issue them once a quarter, and we also want to focus on spot issuance.

I am considering increasing the amount of money to correspond with domestic investors’ demands for long-term bonds. For foreign bonds, our current main non-guaranteed bonds are SRI. They reached $500m last year, so this year is about how to increase from there. And we try another way, for example, changing the currency — not only dealing with dollars but also trying various currencies. 

This might be in a smaller scale, however, as there are many investors that have trouble managing large sums of money in certain currencies such as Australian dollars and New Zealand dollars. There have been demands from various investors, so we aim to diversify our investor base by meeting those small demands. 


Tanaka, JICA: For domestic bonds, we guess non-guaranteed agency bonds will be ¥60-¥80bn, which is larger than last year, reflecting expansion of our operation. 

Our loans are really long ones — some are 30 years or 40 years — so it is more reasonable for us to sell bonds in the longer term; thus maturities would be 10 years, 20 years or perhaps 30 years, depending on market trends. In addition, we have issued $500m foreign bonds twice in the past. We are considering issuing the same level of bonds in 2017 as well, but the currency will depend on the situation. 

Kawae, E-Nexco: We plan to raise ¥600bn overall. The breakdown would be: corporate bonds of around ¥535bn, and the rest being syndicated loans from banks, of about ¥65bn. 

Our main focus is yen bonds. At this stage, we have issued ¥460bn overall in so-called yen bonds. Terms wise, it is ¥250bn for two years, and ¥210bn for five years. In addition, about ¥75bn will be in dollar bonds, in the form of private placement rather than public subscription to target domestic investors. This is to sell dollar bonds to those who cannot buy that much in yen bonds, especially local banks.

Kobayashi, JFM: For our fundraising in the next year, we are planning to raise ¥2.115tr overall. From that, government guaranteed bonds are worth ¥765bn, so ¥1.350tr is to be raised from non-government guaranteed bonds. 

For a breakdown, ¥500bn will be in private placement from domestic investors, and ¥10bn from bank borrowings. We are planning ¥840bn in overall fundraising for non-government guaranteed bonds. We are considering issuing a total of ¥550bn in domestic bonds mainly through 10 year and 20 year bonds, and also five year and 30 year twice a year. We are currently preparing ¥200bn from foreign bonds. 

Also, there is ¥90bn of open issuance that we can sell corresponding to the flexibility of investors’ demands, without restricting the format of bonds. Combining these and watching market trends, we are considering taking an agile and flexible bond issuance approach. 

The open issuance will be allocated to either domestic bonds or foreign bonds subject to investors’ demands and market conditions at the time of each issuance. 

Sugahara, TMG: For TMG, 90% of the total financing is procured via publicly-offered bonds. The issuance plan for publicly offered bonds for this fiscal year is ¥630bn. ¥380bn, which is 60% of the total, is issued regularly in the core product of 10 year bonds, which provides liquidity by being issued on a monthly basis. 

We are also planning to equalise redemption and diversify the risk of interest rate fluctuation by issuing bonds of various terms. For the next fiscal year, we have set up a budget proposal to reduce the amount of newly issued bonds by 15.6% to ¥298.3bn, and to reduce the outstanding amount by ¥2.2bn to ¥5.6tr. 

Although the amount of financing is expected to decrease as a whole, we will continue to issue bonds while valuing communications with investors, which is our basic stance for our bond issuance. 

Kanamoto, JBIC: Our budget for this year, which is under budget deliberation at the moment, is going to be almost doubled compared to the last year (FY2017: ¥1.76tr which is equivalent to $16bn). This is really a challenging figure, so I would like all the readers of GlobalCapital to grasp this, and purchase our bonds. 

We have usually issued longer than five year bonds in the past, but now we issue bonds shorter than five years. Central banks or government banks, official institutions and asset management companies buy our three year term bonds, so we would like to achieve this budget by expanding our investor bases. 

: When it comes to the development of green/SRI bonds for Japanese issuers, how is the domestic and international investor base evolving?

Matsuoka, DBJ: In terms of SRI investors, I think that the Japanese investor base has definitely been expanding. The big investors, for example the life insurance companies, commit to the investment at the company management level, and then look for investments and bonds to buy.

As for the views of overseas investors on the Japanese green bond market, I think the expectation is very high. The biggest reason would again be diversification of their portfolios. While most green and SRI bonds were issued by Europe and China recently, I have the feeling that there is high expectation for Japan to issue them. 

Tanaka, JICA: Talking about this from our experience, “Guidance for Issuers of Social Bonds” was published by ICMA in June last year. JICA took a second opinion that our bonds are following the guidance, and published that in August 2016. 

Domestic investors have said that they like bonds more if their name demonstrates a contribution to society. Considering those demands from investors, we started to sell domestic bonds with the name of social bonds. By doing so, our existing investors said that it is much easier for them to achieve accountability, and also we feel that new investors are coming in because of that.

We haven’t classified our previous overseas foreign bonds as social bonds, but we may consider calling them social bonds overseas as well in the future in consultation with the government of Japan. 

Therefore, in terms of whether this investor base is developing or not, we feel that numbers of investors have increased overall. There was already an investor base at a certain level though. By selling bonds with this kind of a name, investors can show on their website that they are contributing to the betterment of society by purchasing JICA’s bonds.

 I think it is also because a number of those people, who have invested in us before, have just come to the surface. 

Kawae, E-Nexco: To be honest, this is the hardest question to answer. As proceeds from our bond issues are mainly used for the construction of expressways, they don’t really fall into the category of green bonds, so we don’t issue green bonds at the moment. 

We have great interest in green bonds though. There is increasing interest from investors about whether we can issue green bonds or not, so we are positively considering doing something.

Aside from SRI bonds, we are planning to issue private placement bonds targeting local governments in our business area, aiming to find new domestic investors in Japan. We call them area-linked bonds. Take the Tokyo Gaikan Expressway, the metropolitan area loop line that we are currently constructing, as an example. As it greatly eases the traffic jam in the metropolitan area, we are targeting the special districts in Tokyo, to ask for their support for our business in the form of investment in the bonds. 

Our business area also covers Tōhoku. For example, if you go to the Tōhoku district, there is the Jōban Expressway that we constructed as one of the symbols to support reconstruction. I think it would be great if we could issue area-linked bonds to those local governments. But there is no discussion yet. This is just our hope at the moment. 


Kobayashi, JFM: We also often get asked if we issue green bonds or not when we visit overseas or in Japan. Our use of funds is, for example, the improvement of water and sewage, or reducing carbon dioxide — something relatively close to green — and therefore we get comments that we are nearly issuing green bonds. 

However, we are aware of the need to research on that properly, and have set up a working group to study it. We are patiently monitoring these trends, and it is clear that there is a great interest in green bonds. 

Sugahara, TMG: In December 2016, TMG issued Tokyo environment supporter bonds, targeting retail investors, as a trial for the issuance of green bonds in Australian dollars for about ¥10bn.

It was issued to target retail investors with the intention of them gaining awareness of the city’s environmental projects through investment, and it sold out on the first day. 

In addition, in February, we announced plans for issuing next year’s green bonds. We have set the issue amount to about ¥20bn in total, and we are targeting both individual investors and institutional investors. We hope that such efforts will contribute to the expansion of our green bonds investor base.

: Should green/SRI bonds be priced more tightly than conventional bonds?

Yasuda, Nomura: The market expansion and bond pricings correspond with each other. In terms of investment in green bonds or SRI bonds, there are some press releases stating that Japanese life insurance companies have invested.

Also, from our recent discussions with investors, Nomura has recognised that more investors have become quite assertive about investment in such bonds. Right now, it seems that demand is increasing more than supply. Therefore, there may be more chance that green/SRI bonds could be priced tighter than conventional bonds.

Matsuoka, DBJ: As an issuer, we of course prefer to price tight, but SRI investors clearly say that they need SRI characteristics as well as good yield. 

However, arbitrage may work naturally to keep a good interest rate for investors. For example, I heard that the French green OAT issued recently was tighter than conventional bonds, so that kind of event is actually happening. It would be fine if the price was something the investors would also agree on. 

Tanaka, JICA: Demand is exceeding supply at the moment, so if supply could rise it would be really appreciated. We would love to help to continue the move in this direction. 

At JICA, we consider selling ESG [environment, social, governance] or social bonds a very important part of the appeal of our activities and key to the meaning of our existence as an issuer. We would like to get into this market and we hope the price is right to catch it.

Kobayashi, JFM: We don’t issue green bonds either, because as an issuer it is much appreciated if we raise cheaper funding. There are still some tasks to consider, like how we manage monitoring or reporting. We need to examine various case studies, to see if it’s worth the extra work and price.

Sugahara, TMG: As for green bonds, such as the French government bonds issued in January 2017 that gathered demand of €23.5bn against the issuance of €7bn, we understand that the total demand is likely to be larger than that of ordinary bond issues. Based on market principles, it could be understood that issues should be priced tightly compared to ordinary bonds, but I hear that this is not the case at present. 

It is indispensable for issuers to increase their appeal to investors, but if green bonds that gather more demand compared to ordinary bonds are to be priced more tightly, we think the number of green bond issuers will increase and the market will be revitalised.

: Is there a worry that the burden of issuing green/SRI bonds is becoming too much — in terms of post-deal reporting, separate audits etc?


Matsuoka, DBJ: We issue bonds under the name of sustainability bonds. The reason is quite simple. One of our eligible assets, our Environmentally Rated Loan Programme that we developed long before the boom of the green bond, did not fit the Green Bond Principles (GBP), so we named it differently.

In that sense, I guess many issuers are wondering how to meet the GBP, and how to factor in the extra work needed to do so. 

There was a project by the Japanese Ministry of Environment to make issuers’ guidelines with a translation of the GBP. I was a member of the committee, and a big discussion point there was how to lower the hurdle to enter the green bond market. 

There were also investors at the debate. In the green bond market, there are many different investors such as dark green and light green. But not everyone seriously requires impact reporting or a third-party assurance. For example, when there are reliable green bonds issued by an organisation that is well known, some investors say that there might be no need to do the extra work to completely meet the GBP or to pay an extra fee to the audit firm. 

Some work, such as using an auditor, is also mentioned as a ‘recommendation’ in the GBP, not as a ‘must’. The Ministry of Environment clarified the difference and showed some variations of green bond issues so that the issuers could have a picture. 

Of course, the guideline is in line with the GBP, but detailed explanation of the GBP will make it easier for Japanese issuers to enter the market. Japanese people take written rules seriously, so when we see a recommendation, we tend to think we must adhere to it. In reality, when I talk to investors, there are many dark green investors who say they won’t buy our bonds because they are not green. On the other hand, there are investors who often listen attentively to our framework, and regardless of it being green or not, they will buy our bonds because they just like our framework.

Tanaka, JICA: We feel that we are slightly different from other issuers because we don’t actually do any extra work to issue social bonds at least in our domestic market. There are four principles to follow in accordance with the social bond guidance published by ICMA, and we are already committed to those four — namely, use of proceeds, process for project evaluation and selection, management of proceeds, and reporting. 

For example, we externally conduct the ex-ante evaluation and the ex–post evaluation for all the projects, and all the projects in action are basically aimed at the 2030 Agenda for Sustainable Development including the Sustainable Development Goals. And after the completion of the projects, the evaluations are all published externally. 

Therefore, for us, social bonds or green bond guidance just fits the way we have already been conducting projects, and we would like to use this opportunity and characteristic to explain the credit of our organisation.

Yasuda, Nomura: There are third-party certification organisations that provide bonds with certification of “greenness” or “socialness”. As the market gets more receptive to green/SRI bonds, such organisations will find themselvse in competition to win the mandate for the third-party certificate, which will mean that it becomes easier to obtain useful advice from the organisations when issuers consider such bond issuance. 

In fact, Nomura keeps a direct contact with such organisations to provide issuers with the right advice. We are still at the beginning stage of developing this market for Japanese issuers. Nomura would like to serve as a facilitator of these new products for Japanese issuers to make more issuers and investors keener to participate. 

Sugahara, TMG: As you know, the background to why voluntary industry guidelines like the Green Bond Principles have been created is because there are concerns, such as green wash, where something looks as if it is environmentally conscious, but does not involve actual actions. To secure the transparency of green bonds, it is understood that it is necessary to handle investors’ requests.

However, from the viewpoint of further expanding the green bond market, there is a concern that the extra burden will be a major entry barrier and will hinder the development of the market itself. We think it is necessary to continue to take appropriate measures in the future based on market trends.

: How can we develop the Japanese capital market so that it is a more important venue for international issuers, including Asian issuers?

Kobayashi, JFM: In the short term, the Tokyo pro-bond market is ready, and it is a matter of how we perform there. However, there has not been a lot of activity there yet, so in the short run, the crucial task is to boost the pro-bond market. 

Also in the long run, as has been discussed earlier, our government is quite stable at the moment and it is aiming to revitalise regional governments around the country.

There is a also big project to relaunch Tokyo as a big financial centre, with original ideas from the locals. I think there is a way to make this happen.

Kawae, E-Nexco: This might be slightly general but to activate the Japanese bond market, it is important to create an environment where there are investors who buy bonds steadily.

In that sense, I think it is necessary to steadily generate investors who are interested in bond investments, including IR activities.

Our company, E-Nexco, has requirements for about ¥460bn in corporate bonds. We have sister companies C-Nexco and W-Nexco, as well as Shuto Expressway and Hanshin Expressway. If we add together all these road sector corporate bonds, I guess this year’s development will probably be over ¥1tr in scale, which is perhaps the biggest amount yet.

So there are not only investors who buy these road corporate bonds, but there is also a stable base in the Japanese bond market where we can raise ¥1tr solely on road corporate bonds. There could be appeal overseas as well.

We actually do IR overseas. I mentioned that we target domestic investors for foreign bonds, but overseas investors buy our yen bonds. Asian investors are especially keen to buy our yen bonds, so although we are a very domestic company, I’d like to promote our investment bond credits and name to overseas investors. 

I believe this will lead to the development of the Japanese bond market by creating an environment where overseas investors steadily buy our bonds. 

Sugahara, TMG: At TMG, in December 2016 we formulated a new plan called The New Tokyo to be created with Tokyo people. We set out the execution plans for 2020, and among them, there are measures to make Tokyo Asia’s number one international financial centre. We will consider radical measures for revitalising the finance business and steadily promote it, and implement measures that can be promptly launched to attract overseas financial institutions, and to accelerate the attraction. 

Specifically, within the “international finance city” we will develop the business and living environment, review the tax system, promote entry into the market for fintech and nurture new investment managers, etc, create a friendly market for investors around the world through fiduciary responsibility, and we will consider drastic measures to revitalise the finance business and steadily promote it. 

In the latter case, as was summarised in December 2016 based on the discussion at the “Study Committee on Promotion of Attraction of Overseas Financial Companies” consisting of TMG, Financial Services Agency and financial companies, promotion will be accelerated by implementing immediate measures concerning coming to Japan, procedures to alleviate the burdens of being in Japan after entering the country, and support for foreigners to help them to live here more easily. 

In addition, in an effort to contribute to the revitalisation of financial markets, we will issue green bonds to circulate funds to address environmental measures, including global warming, and to establish a means of operating the financial instruments of corporate and individual investors to help the diversification of their financial assets.

Matsuoka, DBJ: I strongly think that quantity is important. Earlier, I mentioned small-scale things like MTNs, so this might sound contradictory.

The important thing is to increase the number of issuers who can issue large size bonds in order to raise awareness of the Japanese market, or Japanese issuers. This is also crucial for stock companies. In talks with investors it is liquidity that is most discussed. They emphasise that liquidity is important, and it requires a certain size to be a benchmark.

Therefore, we want there to be a continuous issuance of bonds, and we really want to explore that path together. 

Yasuda, Nomura: Nomura’s debt capital market operation runs two businesses — the procurement of Japanese yen funding for overseas issuers, and the procurement of foreign currency bonds for Japanese issuers. 

I feel the Japanese capital market is unique in that it’s a bit remote from the global market. It was probably the first market to see bond issuance among the world’s major markets after the Lehman shock.

In that sense, this market has stayed open during turmoil, and if issuers make use of this uniqueness, the market is really beneficial to various issuers around the world. 

On the other hand, there is something to improve. Like AIM, ABMF, or Pro-Bonds, the change in the mechanism of the issuing platform needs to be happening continuously. This is what Nomura, as a securities firm, has been working on.

In addition, regarding investors, yen bonds have been sold recently not only to Japanese investors but also overseas investors. Nomura feels that it is our responsibility to introduce such investment opportunities through our global investor coverage. 

: What is the main thing you would like to emphasise to investors reading this report? What can they expect from you in the future?

Kanamoto, JBIC: The issuers who are attending this roundtable are all prominent companies representing Japan. Of course, there will be different views from each company. But what I want to ask is to look closely at Japanese names and invest in them. Please invest generously. 

Tanaka, JICA: My concern is that the name JICA is not yet recognised much by overseas investors. They would notice a World Bank or Asian Development Bank, which implement similar projects, in nature and size, as we do. However, we would like to issue foreign bonds regularly every year from now on. 

As I mentioned earlier, we continue to work as an organisation to support developing countries to reach the Sustainable Development Goals. I’d like to sell our bonds to those who understand our activities and visions. We would also like to work on increasing and diversifying our investor base, so it would be very much appreciated to have your support. 

Kobayashi, JFM: JFM is the organisation that provides long term and low interest funds for local governments. When it comes to service to residents, the role of the local government is really crucial. While there are various tasks, like a decreasing population and regional revitalisation, I believe it is our mission to support stable financing. 

To achieve this mission, we will keep working hard on issuing bonds, regardless of domestic or overseas, so we would be very grateful if you would consider making an investment in us. 

Kawae, E-Nexco: We have issued the maximum amount this year, ¥460bn bonds, and we are currently working on the construction of a metropolitan area loop line, where most of the funds will be put. We are working on two loop lines, and the Ken-ō Expressway is heading towards completion.

It improves the country’s logistics, and there are further logistics plans following Ken-ō Expressway’s completion. By making logistics much better, it is also contributing to the health of the Japanese economy. 


As for the corporate bonds that we will be issuing this year, not all of them, but a large part, will be used for the construction of another loop line, Tokyo Gaikan Expressway. This is the inner loop line of the Ken-ō Expressway, and by completing this, it will ease the traffic in the metropolitan area. We believe this will make a big social contribution. 

We often promote to overseas investors as we would like to make them interested in and invest in our bonds. Our story is the construction of expressways, which contributes to society as an infrastructure investment. 

Sugahara, TMG: TMG has a fiscal budget of ¥13tr, comparable to the national budget of Sweden; has a wealth of independent resources; and enables flexible fiscal management with no dependence on the country. In addition, by thoroughly reviewing revenues and expenditures constantly, we have adhered to sound financial conditions. 

Regarding the rating of TMG, S&P has rated the standalone credit profile of TMG itself, before applying the sovereign ceiling, to be “AA”, which exceeds the sovereign from the past, which is still maintained. TMG’s finance maintains a high soundness, TMG will continue to strive for self-reform efforts in the future, firmly adhere to the strong financial base, pay close attention to the safety of TMG bonds and maintain it.

Matsuoka, DBJ: I seriously wish the rating agencies will read this article. And please buy our bonds — this is very important. 

Yasuda, Nomura: Here today, we have issuers who represent Japan. Assuming the total fundraising amount is expected to significantly increase in the next fiscal year, up to the level of top developed countries’ major issuers, 2017 will be a challenging year for issuers. 

Therefore, we need to be creative and co-operate to appeal to investors and the market. Once we achieve this end, money will be circulated to make the Japanese economy more active and develop it, resulting, hopefully, in Japan’s upgrade.