The Eurobond market opens to Japanese firms
Although the Japanese domestic market for bonds was closed by strict issuing requirements, Japanese firms in the mid-1980s began to tap the Eurobond market for funds. The Eurobond market was opened to Japanese companies after the US pressured the Japanese to increase international use of the yen through the Japan-US Yen-Dollar Committee meetings of 1984.
As a result of this effort, the MoF allowed Japanese companies to issue equity-linked bonds (convertible bonds or bonds with warrants) in the Euromarkets. This permission arose as a compromise between several camps. Securities firms and Japanese industrial companies both wanted to increase the use of bonds. Banks wanted to prohibit straight bonds because they would give banks direct competition. The government wanted to keep bonds out of the domestic market because corporate bonds would compete with government bonds and this would drive up the government's interest costs.
So an unwieldy compromise was forged. Japanese corporations could issue equity-linked bonds in the unregulated Euromarkets centered in Switzerland and London, but domestic issues were limited. As soon as the MoF allowed the issuance of such bonds, their outstanding balance skyrocketed. For example in 1984 Japanese firms issued ¥434 billion in overseas warrant bonds, and in 1989 ¥8.3 trillion in warrant bonds were issued. Much of this debt had five to seven year maturities that would come due in 1993 and 1994 if the debt was not converted into equity. With the 1990 crash in Japanese stock values, bond holders have not converted to equity, so Japanese firms now must rollover approximately ¥10 trillion worth of debt in 1993 and ¥6 trillion in 1994.
When the Japanese came up with the compromise regarding the issuance of Eurobonds, they probably knew that such a tenuous arrangement could not last very long. It didn't. With the ability to issue bonds overseas, Japanese corporations looked for ways to issue corporate debt domestically. They didn't have to look very long. In 1985, TDK became the first Japanese firm to issue an unsecured, straight bond in Japan. Although the banks would continue to fight companies' ability to issue bonds, they were fighting a losing battle. Increasingly the MoF eased issuing requirements for bonds. For example, in 1985, only 70 blue chip firms meet the MoF's strict bond issuing requirements. By 1988, over 300 firms could issue straight bonds in Japan.