RetireJapan

https://www.rakuten-sec.co.jp/web/bond/ ... /20230925/

My Japanese isn't quite good enough to fully understand this.

The big headline seems to be 5 years @ 4.84% (before tax).

It's a bold headline but surely it's not a guaranteed return. Or is it? And what might the catch here be? Something to do with exchange rates perhaps...

Anyway, it got my attention!

If you are investing with yen, you are at the mercy of exchange rates when you buy and sell. So if the yen strengthens over the five year term you may lose out. Personally I don’t think the return on these kind of products is worth the exchange rate risk.

Got it, I thought as much.

Yeah, I can do without all the worry associated with that.

Thank you.

(I'm just jealous of my sister who has just put a ton of money in a 5+% guarantee return account in the UK. Damn!)

It's a bond offering 4.84％（Pre-Tax） 3.856754％（After Tax）on a US$ investment.

You just don't know if your US$ is still going to be worth the same amount of Yen at the end.

If your base currency is US$, then it's great... guaranteed 3.856754％...
If your base currency is JPY AND you can Hedge the Yen Exchange Rate Risk (that would eat into your gain), then you'd maybe make 2%
If your base currency is JPY AND you can't Hedge the Yen Exchange Rate Risk, and the exchange rate moved against you, then could lose 10%, 20%, 30% of your principle, who knows...

Thanks.

I'm not going to be doing this, but....

If your base currency is JPY AND you can Hedge the Yen Exchange Rate Risk (that would eat into your gain), then you'd maybe make 2%

....I'm interested in that bolded part.

Could you perhaps elaborate? Just curiosity!

That's a Mizuho Bank US dollar denominated bond. While Mizuho has an investment grade credit rating it would be odd to choose a 5 year bond from a private financial institution that itself faces some added risk because it is issuing bonds in a currency other than where it does most of its business for a 4.84% pretax yield when the current US Treasury 5 year bond yields 4.60%. That is a tiny 0.24% margin you are being paid for accepting the risk from a private bond issuer over the risk-free yield the US government is offering for the same 5 years, assuming that you don't mind the exchange rate risk both bonds would face for a yen-based investor.

https://ycharts.com/indicators/5_year_t ... ast%20year.

Tkydon wrote: ↑Sat Sep 30, 2023 2:54 am It's a bond offering 4.84％（Pre-Tax） 3.856754％（After Tax）on a US$ investment.

You just don't know if your US$ is still going to be worth the same amount of Yen at the end.

If your base currency is US$, then it's great... guaranteed 3.856754％...
If your base currency is JPY AND you can Hedge the Yen Exchange Rate Risk (that would eat into your gain), then you'd maybe make 2%
If your base currency is JPY AND you can't Hedge the Yen Exchange Rate Risk, and the exchange rate moved against you, then could lose 10%, 20%, 30% of your principle, who knows...

Thinking about being a yen based investor and mostly rejecting non-JPY investments on the basis of exchange rate risk is quite risky attitude in itself.

With the long term demographics here I think it’s quite prudent to build up some pots of investments in other currencies - USD, EUR, GBP, CNY, whatever. Just prudent not to hold or think about everything in yen and miss out on the various options available to those who choose not to see themselves as yen-based investors but more prudent diversifers.

None of us can forsee future forex rates and whether the yen will appreciate or depreciate in the long term. So I think it’s wise not to have all one’s eggs in a single yen basket… better to have a number of baskets.

Same same applies to (say) a British investor in the UK… who knows where sterling will be in a couple of decades? He or she would also be wise to have some non sterling baskets too.

Mrblobby wrote: ↑Sat Sep 30, 2023 12:18 am https://www.rakuten-sec.co.jp/web/bond/ ... /20230925/

My Japanese isn't quite good enough to fully understand this.

The big headline seems to be 5 years @ 4.84% (before tax).

It's a bold headline but surely it's not a guaranteed return. Or is it? And what might the catch here be? Something to do with exchange rates perhaps...

Anyway, it got my attention!

It is a guaranteed return in USD as long as you keep this bond until maturity. If you sell it before the maturity, your return will depend on the level of interest rates at the time you sell it compared to the time you bought it. If it is higher, you will have a capital loss; if lower, a capital gain.

It is a guaranteed return in USD as long as you keep this bond until maturity.

Just to avoid any misunderstanding, a private bond like this does not have a guaranteed return. I would agree that it is highly likely that you get this return but it depends on Mizuho being able to pay.

TokyoWart wrote: ↑Thu Oct 05, 2023 3:20 pm

It is a guaranteed return in USD as long as you keep this bond until maturity.

Just to avoid any misunderstanding, a private bond like this does not have a guaranteed return. I would agree that it is highly likely that you get this return but it depends on Mizuho being able to pay.

It is highly unlikely that Mizuho would default on this bond during, or at the end of the 5 year life of the bond.

However, if you invest Y1,500,000 to buy a $10,000 bond at Y150 to the $1, it will yield 3.856754％ in USD（After Tax）

Cashflows $

Year 1 - $385
Year 2 - $385
Year 3 - $385
Year 4 - $385
Year 5 - $10,385

Total - $11,920

But, what will be the value in Yen of that $10,000 at maturity?

If the US cuts Interest Rates, the Interest rate Differential will fall, the USD will weaken, and the Yen will Strengthen.

If the exchange rate falls below Y125.8389 to the USD in 5 years time, you lose money...

But then if the US Interest Rates come down, the bonds should increase in price mid-term...