Japan raises significant amounts from capital markets to finance government expenditures, mainly through borrowings and issues of Japanese Government Bonds (JGBs) and Financing Bills (FBs). Outstanding JGBs as of 31 March 2008 amounted to ¥ 776,017 billion.

JGBs can be construction bonds, special deficit-financing bonds, refunding bonds, or Fiscal Loan Bonds. All follow the same regulatory framework.

JGBs fall under six categories:

1. Short-term bills (T-Bills) have tenors of 6 months or 1 year and are discount bonds with a minimum face value of JPY10 million. They are issued via public offering or a Bank of Japan (BOJ) “switch” (underwritten by BOJ to roll-over maturing bonds). T-bils are priced via price-competitive or conventional-style auction. Trading is restricted and is conducted on a monthly basis.

2. Medium-term bonds have tenors of 2 years or 5 years and are coupon bearing with a minimum face value of JPY50,000. They are issued via public offering, postal savings (over-the-counter [OTC] sale), or as Fiscal Loan Bonds (directly underwritten by postal savings and pension funds). Medium-term bonds are priced via price-competitive or conventional-style auction. They are unrestricted and issued monthly.

3. Long term bonds have a tenor of 10 years and are coupon bearing with a minimum face value of JPY50,000. They are issued via public offering, postal savings (OTC sale), or as Fiscal Loan Bonds (directly underwritten by postal savings and pension funds). Long-term bonds are priced via price-competitive or conventional-style auction. They are unrestricted and issued monthly.

4. Super-long-term bonds have tenors of 15-years (floating rate), 20- and 30-years and are coupon bearing. The 15-year floating rate bonds are issued at a minimum face value of JPY100,000 with 20- and 30-year bonds at JPY50,000. They are issued via public offering with the exception of 20-year bonds which can also be issued via Fiscal Loan Bonds. Fifteen- and 20-year bonds are priced at price-competitive or conventional-style auction, while 30-year bonds use yield-competitive or Dutch-style auction. Fifteen-, 20- and 30-year bonds are issued bi-monthly, monthly, and quarterly, respectively, and are unrestricted.

5. JGBs for individual investors are issued based on a 10-year floating rate and a 5-year fixed rate with a minimum value unit of JPY10,000 via quarterly public offerings. Bond transfers are restricted to individuals.

6. Inflation-indexed bonds have 10-year tenors at a minimum face value of JPY100,000 and are issued via public offering, priced at yield-competitive or Dutch auctions. These bonds are issued twice monthly.

Japanese debt are also issued by purpose of funding:

1. Financing bills are short-term government securities issued by statute to cover the shortage of funds either in the government’s general or special accounts.

2. Subsidy bonds are government securities issued in place of the provision of cash.

3. Subscription or contribution bonds are a type of subsidy bond issued to pay subscriptions or contributions in whole or in part to international institutions.

4. Government bonds are converted from Japanese National Railways Settlement Corporation bonds and the like.

5. Special account borrowings from the Fiscal Loan Fund or private sector financial institutions pursuant to each Special Account Law.

6. Government-guaranteed debt are securities issued or borrowings made by government-affiliated agencies or local municipal entities.

Aside from traditional instruments such as loans, corporate bonds, and commercial papers, securitized products are also available in Japan’s credit market where various credit risks are pooled with the value of the underlying assets exceeding the risks taken by investors.

Recently, the syndicated loan market and securitization market have been active mainly due to the removal of nonperforming loans from the balance sheets of financial institutions, the need for alternative funding sources for firms affected by the 1997/98 Asian financial crisis, or to diversify risks and secure returns for investors,

The links below offer an overview and update recent developments in Japan’s bond markets.