« Nikkei bounces, gold bounces, Wed. 6/14/2006 6:46 AM | Main | A return to the goldminers? Wed. 6/14/2006 8:25 AM »

June 14, 2006

The financing of Japanese companies in America, Wed. 6/14/2006 7:57 AM

With a triple-A credit rating from Moody's and Standard & Poor's, why would Japan's Toyota Motor (NYSE: TM) not borrow at home, where borrowing costs are so much lower than in the U.S.?

Bill: I've been following your enlightening comments found here on the ‘carry-trade' that goes on in Japan and another story about Toyota losing a ton of $. What doesn't make sense to me is why Toyota is selling bonds on the USA market providing 5.350% interest to the buyer. Why wouldn't they just get the free $ from home?

Below is the listing for their bond on the Fidelity fixed income site.

TOYOTA MTR CR CORP TMCC CORENO 5.350% 07/20/2009 CALL AAA AAA TIL FRI. 6/16 5.35000 SEMI-ANNUAL 07/20/2009 07/20/2007 YES 100.000000 5.350

Best trading, C.Note



003f018.gif

I replied that maybe Toyota has a credit line in Japan (at next to no cost) lined up to buy back the U.S. floated bonds (if, as and when those bonds sink in price with higher interest rates). If the latter were to happen, the USD would be weaker too, making a stronger Yen, ensuring a large profit on the trade.

But, really, I don't know. Maybe our readers would like to share their views?

GICS 25 Toyota Motor (TM) (TM) Financial Data

Posted by Posted by Bill Cara on June 14, 2006 07:57:01 AM | Category: Bonds , Japan

Discourse

Toyota borrows in JPY, but it does not mean that it converts those JPY into USD and lends the cash in the US or other markets -- I am sure they have risk management policies.

To the extent that their footprint has more cost in Japan, it means that structuraly they are short JPY so a natural hedge for them would be to borrow in USD and lend in JPY without hedging. Again if they do that, it might be in a relative small scale.

Posted by: JP [TypeKey Profile Page] at June 14, 2006 9:32 AM [link]