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Japanese Credit

MarketBy

Rucha Kavthekar (64)

Dhwanil Meghani (86)

Devanshi Mehta (87)

Sanket Meshram (89)

Darshana Mhatre (91)

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Overview It is the 3rd largest economy in the world

Japan is the 5th largest importer and exporter in theworld.

Japan has the world's second largest current accountbalance at US$194.754 billion behind China andslightly ahead of Germany.

GDP - $5866.54 billion (2011)

GDP Growth 1.4% (Q2 2012)

Exports - $788 Billion

Imports $808.4 Billion

Gross external debt - $2.719 trillion

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Lost Decade

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Corporate Bonds

Structural Shift :-

Traditionally Asian corporates have relied on bank loans as

their primary source of debt funding and access to the bond

markets has been largely limited to governments and state-

owned corporations. The bond markets have now become a significant source of

debt capital for investment grade companies across the

ASPAC markets, where longer term financing can be

achieved at more attractive rates than in the loan market. Bond markets are increasingly being viewed as a more

reliable source of funding as liquidity problems, regulatory

changes, and higher funding costs contribute to the volatility

of bank lending. Sales of Ja anese cor orate bonds were little chan ed in the

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Growing Significance of Corporate

Bonds

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Syndicate Loan Market

A loan offered by a group of lenders (called a syndicate) who worktogether to provide funds for a single borrower. The borrower couldbe a corporation, a large project, or a sovereignty (such as agovernment).

The loan may involve fixed amounts, a credit line, or a combination

of the two. Interest rates can be fixed for the term of the loan orfloating based on a benchmark rate such as the London InterbankOffered Rate (LIBOR).

The main goal of syndicated lending is to spread the risk of aborrower default across multiple lenders (such as banks) orinstitutional investors like pensions funds and hedge funds.

Syndicated loans in Japan jumped 12 percent to the highest in fouryears in the first half aided by demand for acquisition funds ascompanies sought to take advantage of the yen near postwar highsto expand overseas.

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Japanese Securitisation Market

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Samurai Bonds Market

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Credit Derivatives Market

The credit derivative market size hiked to $ 25.5 trillion from

$0.7 trillion in 2001.

Smaller Credit Derivative market in Japan

Lack of market volatility and liquidity

Tight credit spread

Regulation to limit big loans to a borrower so banks cannot enjoy

benefits if hedging with CDS

The Markit iTraxx Japan index at 193 bps

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Increasing CDS Spreads

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Bank of Japan Policy

Zero interest rate policy from 1999 to 2000

QE policy from 2001 to 2006

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Conclusion

IS JAPAN THE NEXT BIG CREDIT RISK?

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THANKYOU