The value of U.S. dollar bonds issued since the start of 2021 has hit a record $35 billion, up from just $9.8 billion for the same period last year, data from Dealogic showed. There was $41.3 billion worth of dollar debt issued in 2020.
Euro-denominated debt in that time has jumped from $4.7 billion year-to-date 2020 to $8.2 billion, according to the data. Japanese yen issuance, in comparison, has fallen from $31.2 billion last year to $29.3 billion, the data showed.
It is the first time on record that U.S. dollar debt has taken over as the primary currency of commercial debt and comes as Japan's mergers and acquisition market starts to heat up after a long period of subdued corporate activity.
Nippon Telegraph and Telephone Corp this year raised $10 billion equivalent in dollar and euro as part of a 2 trillion yen ($18 billion) bond deal to fund the 4.3 trillion yen acquisition of its wireless service unit.
Favourable interest rates have made it cheaper for some of Japan's largest companies to borrow in U.S. dollars in 2021 than traditional yen, bankers said.
Surging levels of U.S.-dollar and euro denominated debt is the result of ongoing low global interest rates and higher demand from investors hunting the better rates of return on offer from Asian corporate paper.
"Japan has been undersupplied (in debt markets) for a long time, considering the level of GDP and the number of large corporates," said Tatsuya Maruyama, Barclays head of Japan debt capital markets.
"Investors are welcoming this move as they have been asking for more high-grade names out of Asia and especially Japan.
"There is strong demand and in terms of saturation, I wouldn't think the volume out of Japan is impacting the total supply-demand dynamics globally. Investors still have a lot of cash."
Besides building a warchest for M&A, Japanese companies' foreign borrowing binge is also motivated by hopes of an economic rebound after the pandemic-induced slowdown, advisors said.
"Those who have never done foreign debt offerings are interested," said Hiroyuki Kinoshita, managing director for SMBC Nikko Securities' global fixed income capital markets. "Potential demand appears to remain strong this year."
The sheer capacity of the global debt markets is appealing to some Japanese companies, bankers said, allowing them to carry out bigger deals than they could at home.
"In Japan, $1 billion equivalent is large for one-time issuance," said Toru Kuraoka, managing director for Bank of America's Japan Debt Capital Markets.
"In global markets, $1 billion or plus can be issued easily, so this is a good reason to access the global market."
($1 = 108.8600 yen)
(Reporting by Makiko Yamazaki in Tokyo and Scott Murdoch in Hong Kong; Editing by Sumeet Chatterjee and Stephen Coates)
By Makiko Yamazaki and Scott Murdoch