TOKYO -- The Bank of Japan's negative interest rate policy introduced last month is enabling a growing number of domestic companies to issue commercial paper without paying interest, or even with reverse interest from lenders in the latest case.
Sumitomo Mitsui Finance and Leasing will issue 5 billion yen ($44.4 million) in six-month commercial paper with a -0.001% annual rate. In the nation's first issuance of commercial paper with a negative interest rate, the company will receive slightly more than 20,000 yen from lenders.
Investors are willing to lend money even at a cost because they can sell the commercial paper to the Bank of Japan and turn a profit. The central bank buys some 1 trillion yen worth of commercial paper every month as part of its fund-supplying operations, and it intends to keep buying no matter how low their rates are in order to maintain a balance of more than 2 trillion yen of the short-term debt instruments.
The practice of issuing zero-interest commercial paper is starting to become common, especially among blue chips. Asahi Group Holdings issued 21 billion yen in commercial paper with zero interest and a maturity of about two and a half months. NTT Finance, Yokohama Rubber, Orix and Ricoh Leasing are among others that procured funds this way, paying no interest or effectively zero interest.
Credit Saison this month issued a total of 50 billion yen worth of commercial paper with maturities of four or five months at effectively zero interest. With the demand for funds growing in line with expansion of its credit card business, the company plans to raise the ceiling for commercial paper issuance by 200 billion yen to 500 billion yen next month.
The decline in corporate fund-procurement costs is spreading to straight bonds with longer maturities. Yamato Holdings floated three-year bonds with a 0.05% annual rate. If interest rates decline further from their already historic lows, small and midsize businesses will be able to borrow at lower cost.
However, only a select group of investors are buying commercial paper at zero or negative rates, and it is uncertain how prevalent this fund procurement method will become. Some caution that excessive reliance on the BOJ's purchasing operations will distort the market.