More Japanese interest rate hikes may make yen borrowing unattractive: Experts

livemint.com:

Mint. While the latest rate hike may not deter Indian corporates from borrowing from Japan, further rate hikes could force them to reconsider their plans. Last week, the Bank of Japan raised its interest rate for the second time in 17 years in another step away from its long-standing ultra-loose monetary policies, setting an interest rate of 0.25%, up from 0-0.1%.

"Japan was increasingly becoming an appealing source of capital for Indian firms plagued by tight liquidity, high borrowing costs and elevated risk premiums in domestic markets. Markets in the US and Europe were constrained in their appetite for emerging markets owing to decreasing yield spreads between the investor and investee countries, unlike in Japan," said Debopam Chaudhuri, chief economist at Piramal Enterprises Ltd. "But this situation is rapidly changing, with Japan tightening its monetary policy outlook, at a time, when other nations are turning dovish," he added.

In the recent past, Indian companies, public sector non-banking financial companies (NBFCs), as well as the government, have been increasingly reliant on Japanese loans for their fund-raising purposes due to low interest rates. Among companies, JSW Steel, Rural Electrification Corporation (REC), Power Finance Corporation (PFC), and Housing and Urban Development Corporation (Hudco) have cumulatively raised yen-denominated debt upwards of ¥200 billion (about ₹11,000 crore) in the past 11 months, according to publicly available company disclosures. These include loans as well as bonds.