Definition
The term Uridashi bond refers to an indenture issued outside of Japan, in a non-yen denomination, and sold to Japanese investors. Uridashi bonds are issued when there is a significant yield differential between the foreign and local currency.
Explanation
Foreign corporations that wish to raise funds in Japan have the option of issuing what are known as Uridashi bonds. These bonds are sold by non-domestic as well as domestic entities, including corporations, financial institutions and governments, and are issued in a foreign currency (non-yen).
Uridashi bonds are attractive to Japanese investors interested in holding debt that is issued in a high-yield, non-domestic currency. This provides these investors with the opportunity to achieve a higher rate of interest relative to domestic bonds. However, whenever an investor purchases a security that is issued in a foreign currency, they are taking on an exchange rate risk. That is to say, if the value of the foreign currency declines relative to the Japanese yen over time, the Uridashi bond will return to the investor fewer yen than when originally purchased.
Related Terms
Formosa bond, kimchi bond, shogun bond, shibosai bond, Eurobond
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