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- Overview of Local Government Bonds in Japan>
- Local Government Bonds
Local Government Bonds
- Local Government bonds are obligations undertaken by local public entities to raise financing. Repayment periods are longer than one fiscal year.
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Funding sources for Local Government Bonds include government funds (Fiscal Investment and Loan Program loans), the Japan Finance Organization for Municipalities(JFM) funds, and private funds.
- Deeds/certificates or securities offerings may be used for borrowing.
- Borrowing financed by government funds and JFM funds are through deeds. Obligations are not traded in the market until the principal is repaid.
- Borrowings financed by private funds are categorized as bonds publicly offered to the market and underwritten or sold by banks and securities firms, or as bonds underwritten by banks, mutual aid cooperatives, or other entities with ties to the issuer.
The entire amount of publicly-offered bonds is issued in securities form, and the securities are then traded in the bond market.
By contrast, bonds underwritten by banks and others can be in securities form for trading in the bond market, or in deed form, which are not traded. Article 5.5 of the Local Finance Act details Local Government Bond/loans issuance.
Article 5-5 of the Local Finance Act:
A local public body that wishes to issue debt with bonds may publicize, accept subscriptions for and deliver the bonds in accordance with the Cabinet order. Such bonds may be issued at a discount.
A local public body that wishes to issue debt with bonds may publicize, accept subscriptions for and deliver the bonds in accordance with the Cabinet order. Such bonds may be issued at a discount.
- The introduction of the book-entry transfer system for corporate bonds in January 2006 allowed management of Local Government Bonds trades using transfer account. Certificates are not actually issued.
- Under FY2007 tax reform measures, non-resident investors shall be exempt from paying withholding taxes on interest gains on Local Government Bonds under the book-entry scheme. This change is intended to encourage non-resident investment in Japanese Local Government Bonds.
