Japan’s Dollar Debt Binge

Japanese companies are borrowing in US dollars at a pace that could fundamentally reshape Asia’s credit markets. On the surface, this may look purely opportunistic, as firms can fund more cheaply in dollars even after hedging back to yen.

However, we think the trend reflects a deeper structural shift. Having emerged from 30 years of deflation, Japan is increasingly looking outward, which is driven by the need to offset domestic demographic decline and a mandate to increase strategic investments and defence spending. At the same time, firms and the state require funding on a scale that the domestic bond market, diminished by decades of corporate deleveraging, struggles to support.

A Bank of America investor note on 1 April estimated that Japan will be one of the key drivers of Asia-Pacific (APAC) dollar bond supply this year, with an increase in gross issuance of 53% to US$116 billion. This will push up net supply to US$52 billion, an increase of 76% from a year earlier. Supply this year has already surpassed US$47 billion, tracking well ahead of the same period in 2025.

Figure 1. Japan is forecast to be the key driver of APAC dollar bond issuance this year (gross supply, US$bn)

Source: Man Group calculations based on Bank of America data, as of 1 April 2026.

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We think this is welcome news for investors looking for vital geographical diversification and stability, particularly with Chinese issuers retreating from dollar markets in favour of better funding conditions at home.

Stagnate at home or grow abroad

Japan’s rapidly ageing population has left domestic companies with the stark choice of either stagnating at home or buying growth abroad. This demographic push is forcing a wave of cross-border expansion, particularly in the financial sector. Mizuho Financial recently acquired a 20% stake in an Indian non-bank lender, while Sompo bought Aspen Insurance for US$3.5 billion, a deal that prompted the Japanese insurer to obtain its first international credit rating and issue dollar bonds.

With companies from insurers like Tokio Marine to beverage makers like Suntory now heavily reliant on overseas revenues, the need for deep, dollar-denominated funding pools is structurally higher.

Strategic investments in the US

Japan is also aggressively deploying capital to navigate a fracturing geopolitical landscape. With the US erecting tariff walls and pushing for supply chain reshoring, Japan is deepening its position as the largest foreign investor in America, pledging US$550 billion in strategic investments across semiconductors, energy, autos and defence.

While not all political pledges will materialise, we have already seen quite a bit of corporate action. Nippon Steel's acquisition of US Steel creates the world's second-largest steelmaker and is expected to generate significant dollar issuance over time.

Meanwhile, SoftBank's US$65 billion investment in OpenAI, which is the largest single corporate investment in history, was more than half debt-funded, making SoftBank the fourth largest high-yield issuer globally in April. This investment will also lead to the build-out of the largest gas-fired power facility in the US to run the necessary data centres.

Even domestic expansion requires dollar funding

The outward pivot also extends to national security and financing the country’s net zero targets. Prime Minister Sanae Takaichi is pursuing the constitutional reforms required to expand the country's self-defence capabilities. With defence spending already at 2% of GDP and likely to rise further, the capital required to fund this expansion will require significant US dollar funding.

At the same time, the Japanese government and municipalities have issued green bonds and transition bonds, tapping hard currency ESG-focused investors. While most of the issuance has so far been in euros, with recent ones from Tokyo Metropolitan Government and from East Japan Rail, we have seen Japan Bank for International Cooperation (a state funding vehicle for strategic investments) and Central Nippon Expressway tapping the dollar markets. We expect more such issuance in US dollars going forward.

Why Japan’s dollar binge may be good news for investors

For Asia credit investors, Japan's growing weight will increase the region's geographical diversification, stability and global relevance. Unlike Asian equities, where pan-Asian funds have long included Japan, debt markets have maintained an arguably arbitrary developed-versus-emerging markets split, often excluding Japan entirely.

However, many issuers have outgrown these classifications; in equities, for example, Hong Kong and Singapore are in MSCI developed indices, but South Korea and Taiwan are not. This classification debate is unlikely to go away any time soon, but we think the growing weight of Japan will only highlight the evolution of the Asia credit universe. This was a key motivation for major index providers launching a new APAC Index three years ago.

As certain regions, notably China, retreat from US dollar markets, Japan is a welcome entrant.

All data Bloomberg, unless otherwise stated.

Author: Christina Bastin, an Asia credit portfolio manager at Man Group.