It is not as if financial markets are short on action at the moment. Financial pundits and analysts are certainly being served an ample amount of ammunition from which to draw inspiration. In this light, I am sorry to report that your author here at Alpha.Sources is still crippled by a lack of stable access to the internet. Not unlike the issue in financial markets and the global economy the problem with the apartment in which he is housed has appeared to run deeper than first assumed As such, the attempts to secure stable access to the World Wide Web have so far been futile. Here is to hoping that I am will be up and running some time this week.
Another thing which does not seem to be running at the moment (apart from the entire global financial edifice that is) is the market for samurai bonds which are yen denominated bonds issued by foreign entities in Japan. Or more specifically, after Lehman’s default many observers have voiced concern that this might effectively blunt what has hitherto been a very sharp business for both issuers and investors.
I have been writing about the samurais before not least because the market for these instruments has been growing tremendously (1) , but also because the capital flows epitomized by the samurais represent an important example of how an ageing economy such as Japan is a net provider of global credit. Coupled with the thesis of decline in Japanese investor’s home bias, the increase in issue of samurai bonds represent an important case study of the symbiotic relationship between old capital intensive and most importantly yield hungry economies and young economies in need of capital. Obviously, the distinction between old and young here is rather crude and as such, one big theme for the samurais in the past year has simply been the manner in which foreign financial institutions have sought Japanese capital due to the relative calm of capital markets in the kingdom of the rising sun. However, from a fundamental supply and demand perspective, I have also shown how the Samurais can be seen in a wider perspective of the necessity of Japan’s savings to go for yield.
In this way, I think that the structural driving forces for the continuing build up of samurai bond assets are quite strong. However, this does not mean that the collateral from the credit crunch will go unnoticed.
The sudden questioning of the future of the market for samurais is thus not surprisingly closely tied to the almost cataclysmic events in the US financial sector.
