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Economy

Japanese companies rush to raise short-term funds at negative rates

Commercial paper gains popularity as banks cope with BOJ's subzero policy

The Bank of Japan's 3-year-old negative interest rate policy has convinced the country's commercial lenders to pay their corporate borrowers.   © Reuters

TOKYO -- An increasing number of Japanese companies are selling short-term debt that carries negative interest rates to banks, which are trying to mitigate the impact of the negative rates they pay on money they park at the central bank.

Beverage company Kirin Holdings and paper maker Oji Holdings are among the companies that have issued this debt, which takes the form of commercial paper, doing so at rates ranging from minus 0.01% to minus 0.0001%.

Commercial paper, a kind of IOU, has always been a cheap way for companies to meet their daily funding needs, but with the negative rates that the latest arrangements carry, the issuing companies are being paid to take money from banks.

Instruments carrying negative rates now represent 30% to 40% of the overall outstanding balance of all CP arrangements in Japan. Some companies have shifted to selling commercial paper from taking out bank loans to meet their funding needs.

Other corporations that have successfully issued negative-rate commercial paper include ink maker DIC, department store operator Isetan Mitsukoshi Holdings and Yokohama Rubber. Their instruments also carried rates ranging from minus 0.01% to minus 0.0001%.

"We aim to use commercial paper where we can as long as rates are advantageous compared to bank loans," a DIC representative said.

According to the Japan Securities Depository Center, the outstanding balance of CP deals came to about 21.3 trillion yen ($198 billion) at the end of August. Of this, "about 30% to 40%" carry negative rates, a bank CP dealer said.

Commercial paper is similar to a bond, though it matures in much less time. The instruments are unsecured; only companies with high creditworthiness can issue them. They are often issued when companies are in need of short-term funding, typically for covering the cost of an acquisition, paying bonuses or for settling taxes. Leasing companies, consumer credit companies and general traders tend to issue large amounts of commercial paper. Banks, insurers and fund managers are typical buyers.

In 2016, the BOJ started to charge 0.1% interest on a part of excess reserves that commercial banks deposit with it. This negative interest rate policy has continued to this day. Banks are willing to purchase commercial paper at negative rates because the nominal rates are less disadvantageous than paying 0.1% interest to the BOJ.

"The companies' wish to obtain funds at negative rates is being matched by the need of investors," said SMBC Nikko Securities' Tatsuya Hattori.

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