Why are Japanese companies issuing more convertible bonds?

Japanese companies are increasingly issuing convertible bonds because rising interest rates have made traditional debt instruments more expensive.

What is the expected market for convertible bonds in Japan?

Investment bankers are betting that convertible bonds will have a banner year in 2026, with expectations of around ¥1 trillion ($6.4 billion) in proceeds.

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Rising Rates Push Japanese Firms to Convertible Bonds

Q: What are the risks associated with convertible bonds for Japanese firms?

The main risk for Japanese firms issuing convertible bonds is the increased volatility in Japanese stocks, which raises the threat of dilution for existing shareholders.

10 Feb

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Summary

Japanese companies increasingly use convertible bonds due to rising debt costs.
Convertible bonds offer lower borrowing costs but may dilute existing shareholders.
Stock market volatility in Japan is a key concern for issuing convertible bonds.

Rising Rates Push Japanese Firms to Convertible Bonds

Japanese corporations are turning to convertible bonds amid rising interest rates and increased stock valuations. The benchmark 10-year bond yield reached 2.38% in January, a level not seen since 1999, making traditional debt instruments more costly. Investment bankers anticipate a significant surge in convertible bond issuance in 2026, with expectations of around ¥1 trillion ($6.4 billion) in proceeds.

Convertible bonds, which can be exchanged for stock, offer issuers lower borrowing costs, often with zero coupons to reduce interest payments. Last year, Japanese companies raised ¥283 billion through these instruments, a figure that neared ¥969 billion in 2024. However, the primary obstacle to wider adoption is the increased volatility in Japanese stocks, which heightens the risk of shareholder dilution.