An Uridashi bond is a secondary offering of bonds outside Japan. They can be denominated in

Yen The is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the United States dollar (US$) and the euro. It is also widely used as a third reserve currency after the US dollar and the e ...

or issued in a

foreign currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general de ...

. These bonds are sold to Japanese household investors. An Uridashi bond is normally issued in high-yielding currencies such as New Zealand Dollars or

Australian Dollars The Australian dollar (sign: $; code: AUD) is the currency of Australia, including its external territories: Christmas Island, Cocos (Keeling) Islands, and Norfolk Island. It is officially used as currency by three independent Pacific Island ...

in order to give the investor a higher return than the historically low domestic

interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...

in Japan. Provided that the interest rate differential between the foreign and local currency is maintained, the investor will receive higher interest rate payments than if he/she had invested in a Japanese Yen - denominated

bond Bond or bonds may refer to: Common meanings * Bond (finance), a type of debt security * Bail bond, a commercial third-party guarantor of surety bonds in the United States * Chemical bond, the attraction of atoms, ions or molecules to form chemica ...

. In addition to the

credit risk A credit risk is risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased ...

on the bond issuer, the investor also takes on currency risk since the foreign currency denominated coupon payments will have to be exchanged into Japanese Yen for the retail investor or if the investor should wish to sell the bond and exchange the proceeds from the sale back into Japanese Yen. Where the bond is issued in Japanese Yen, they are typically linked to a foreign currency or to an equity index like the Nikkei. Uridashi bonds became very popular in the 2000s and are often associated with the

carry trade The carry of an asset is the return obtained from holding it (if positive), or the cost of holding it (if negative) (see also Cost of carry). For instance, commodities are usually negative carry assets, as they incur storage costs or may suffer fro ...

in which a loan is made in a low interest currency to buy instruments in a higher yield currency. During the 2008 financial crisis the carry trade and foreign currency bonds in general came under criticism in Japan for contributing to the crisis. On 1 November 2015 the size of the Uridashi Bond Market was US$33.2bn equivalent in 15 different currencies.

References

{{Reflist Bonds in foreign currencies