THE JAPANESE GOVERNMENT has urged the Philippines to pursue the sale of samurai bonds, a plan earlier shelved by local finance officials, assuring there was substantial appetite among Japanese investors for such debt instruments.

Sumio Ishikawa, chief representative of Japan Bank for International Cooperation (JBIC) to Manila, said the Philippine government would easily raise much needed funds through the issuance of samurai bonds given that many Japanese investors were currently in search for income opportunities.

Samurai bonds are debt paper issued by a foreign government in the Japanese capital market.

“The Japanese economy is still in bad shape, and many people there are in search for opportunities to earn. Investors are interested in samurai bonds to be issued by the Philippines,” Ishikawa told reporters Friday at the sidelines of a business forum organized by the Association of the Development Financing Institutions in Asia and the Pacific.

The Philippine government expects its budget deficit to swell this year given the need to pump-prime the economy and for rehabilitation efforts following the devastation caused by Tropical Storm “Ondoy” and Typhoon “Pepeng.”

The official target was to limit this year’s deficit to P250 billion, although the Department of Finance has admitted that the ceiling would likely be breached with the budget gap now expected to reach P300 billion. The deficit stood at only P68 billion last year.

One of the proposals to partly plug the deficit was for the Philippine government to issue samurai bonds. The DOF earlier talked with JBIC, which was being asked to provide a guarantee cover for the debt paper so that these could fetch lower interest rates.

Local finance officials thought that with a guarantee from JBIC, which is owned by the Japanese government, Japanese investors would be willing to bid for the debt paper at a lower risk premium.

However, the plan to sell samurai bonds was temporarily put on hold after the Philippine finance department initially assessed that the activity would entail a bigger borrowing cost than if it raised funds from other sources.

The DOF has not yet officially terminated the plan, although it has also not announced when it intends to pursue the sale.

Ishikawa said that the Philippine government should understand that the cost of issuing samurai bonds would entail the guarantee fee by JBIC and the premium that Japanese investors would like to seek given the still relatively uncertain global economic environment and the Philippines’ fiscal situation.

The JBIC executive said it was worthwhile for the Philippine government to issue samurai bonds.

He said such a move would further reinforce the positive relationship between the two countries.

“Like Jpepa, the sale of samurai bonds by the Philippines will be a good opportunity for mutual understanding and cooperation between Japan and the Philippines,” Ishikawa said.

Under the Jpepa, or the Japan-Philippines Economic Partnership Agreement ratified earlier this year by the Senate and approved by Malacañang, trade of goods and services between the two countries has been made easier.

For instance, tariffs on products traded by the Philippines and Japan have either been lowered or eliminated. More Filipino nurses were also allowed entry to the Japanese labor market.