Farewell to the era of "free money"! Japanese companies' overseas borrowings surge to a record-breaking $132 billion, shaking up global markets.

The end of the era of "free funds" in Japan, a series of trading booms, and the prosperity of artificial intelligence have collectively driven Japanese companies' overseas borrowing to record levels. This renewed vitality is stirring up global markets. As of 2025, Japanese companies have raised $132 billion through foreign currency bond and loan transactions arranged by banks, a 56% increase from the same period last year. Highlighting this unprecedented shift towards the global stage is the anticipation that annual overseas bond issuance may for the first time exceed the issuance of yen-denominated bonds. All of this has prompted securities firms to strengthen their personnel, private credit giants to attempt to enter the lending business of Japanese companies, and has given rise to a new important index. Few trends illustrate Japan's reshaping of the global financial and market landscape better than its emergence from decades of deflation. Japanese companies that have hoarded cash for years during economic stagnation are now increasing spending and acquisitions, making them one of the most active drivers of global transactions this year. A meeting between new Prime Minister Takaichi Sanae and Trump last week has raised hopes for further easing of trade tensions. Japan issues record high overseas bonds With the cost of yen borrowing rising to its highest level since the late 2000s, financing overseas instead of domestically is becoming more attractive. Despite the Bank of Japan maintaining its benchmark interest rate last week, inflation pressures have prompted it to raise rates three times since March 2024, while other major central banks are cutting rates. "We have significantly increased personnel for foreign currency bonds and are strengthening in this area," said Kazuhiro Yamauchi, Head of Global Debt Capital Markets at Mizuho Securities, the largest underwriter of Japanese corporate bonds. "Issuers who were previously not interested are now starting to seek more information." These activities have led to another major shift: Japan has become the largest source of US dollar bonds in the Asia-Pacific region, a position previously held by China, mainly driven by real estate developers. Tatsuya Maruyama, Head of Japanese Debt Capital Markets at Barclays Bank, said that financing costs priced in US dollars and euros are relatively competitive or even lower than those priced in yen for Japanese borrowers, making overseas transactions favorable. Barclays is the largest European underwriter for Japanese foreign currency transactions. Japanese borrowers have also caused a stir in the loan market. SoftBank Group earlier this year arranged a $15 billion bridge loan for an artificial intelligence investment, one of its largest borrowings. Japan's recovery has also excited global private credit institutions. Alternative asset management companies like KKR are increasingly eager to compete with banks in initiating loans in Japan, and many companies have raised funds for global private credit funds in Japan. After years of promoting higher shareholder returns on the Tokyo Stock Exchange, trading and privatization of companies have become a major force. Japan has become a hotbed for mergers and acquisitions, so much so that the country has become KKR's largest market in Asia. Data shows that mergers and acquisitions by Japanese companies that have been ongoing or completed this year have increased by 129% to $262 billion, with SoftBank's massive investment in artificial intelligence and NTT Data's privatization being among the largest transactions. As Japan's declining population forces companies to seek growth abroad, many of these acquisitions directly drive overseas financing. Makiko Yoshimura, Director and Senior Credit Analyst at S&P Global Ratings, said, "For many Japanese companies, seeking overseas investment is not a trend, it's almost a necessity," and cross-border borrowing for this purpose reduces the "mismatch" between financing and business operations. Japanese companies now also lead in the issuance of junk-rated foreign currency bonds in the Asia-Pacific region, something previously unimaginable. So far in 2025, the issuance of such bonds amounts to around $14 billion. Japanese borrowers become the largest group of global bond borrowers in the Asia-Pacific region Take the example of Lotte Group, rated speculative grade by S&P Global Ratings. The company has issued several billion dollars worth of bonds overseas in recent years, with outstanding US dollar and euro bonds exceeding $7 billion. SoftBank and Nissan are also among the most active issuers of junk bonds in Japan. But junk bonds are only a small part of Japanese bond issuance. What truly transforms the face of Asia's US dollar bond market is a large number of investment-grade transactions, turning this asset class from one long seen as an emerging market investment target into a category that no longer fits this description. This was evident when J.P. Morgan launched a bond index in 2023 that included Japanese and Australian US dollar bond issuances, providing a broader benchmark for the regional credit market. "Any core quality credit market should be investment grade," said Owen Gallimore, Head of Credit Analysis in the Asia-Pacific region at Deutsche Bank. "The situation in the Asian market is much better now, with improvements in breadth and depth." According to comprehensive credit ratings, over 70% of Japanese overseas issuances this year have an A rating or higher, raising the average rating of Asian US dollar bonds. In fact, this year's most prominent deal in Japan comes from an investment-grade giant. NTT Inc., the Japanese telecommunications company that was once the world's most valuable enterprise during the peak of Japan's bubble economy in the late 1980s, sold $17.7 billion worth of US dollar and euro bonds in July. This was the largest global issuance by an Asian enterprise in history. The funds raised will support the privatization of its artificial intelligence division, NTT Data, one of the world's largest data center operators. Japanese borrowers account for about 28% of the $386 billion equivalent US dollar and euro bonds issued in the Asia-Pacific region this year, with the annual share expected to reach a record. This ratio is up from 18% five years ago, while the combined share of Chinese and Hong Kong bonds has plummeted from 49% to 24%. For investors, considering better performance, they prefer Japanese foreign currency bonds to yen-denominated bonds. This year, yen corporate bonds have fallen by 0.5%. In contrast, data shows that the return on investment-grade US dollar securities in Asia and the United States is at least 7.2%. "In Japan domestically, we like the diversity of issuers," said Omar Slim, Co-Head of Asian Fixed Income at PineBridge Investments. "If you are an investor in the Asia-Pacific region, you have to pay attention to Japan."