By Aaron Pan Oct. 31 (Bloomberg) -- Japanese yen corporate bond sales dried up in the second half of October as the seizure in global credit markets, plunging equity values and volatility in the Asian nation's currency deterred investors. Toyota Finance Corp. was the last company to sell yen bonds when it issued 42 billion yen ($428 million) of three- and five- year notes on Oct. 15, data compiled by Bloomberg show. The Tokyo-based lessor reduced that sale from a planned 50 billion yen after market turmoil pushed up borrowing costs, a company official said at the time. ``The credit market is dead,'' said Kazuaki Oh'e, a debt salesman in Tokyo at CIBC World Markets Japan, part of Canada's fifth-biggest bank. ``Investors don't want to buy anything because there's so much credit risk right now.'' Lehman Brothers Holdings Inc., once the fourth-largest U.S. securities firm, stunned investors by defaulting on 195 billion yen of bonds after it declared bankruptcy on Sept. 15, becoming the first U.S. company to fail to honor its debts in Japan's samurai bond market. October bond sales by Japanese companies slumped to 352 billion yen, about a third of the same period a year earlier, as the credit market freeze curbed investor demand for corporate debt. Japan's Nikkei 225 stock average fell to the lowest since 1982 on concern banks will require government aid, and is down 43 percent this year. The nation's six biggest banking groups, including Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc., had a combined 1.1 trillion yen in unrealized losses on their shareholdings as of Oct. 24, according to the Daiwa Institute of Research. Risk Appetite Wanes ``It is very hard to price any new bond issues,'' said Koei Takahashi, credit strategist at Nomura Securities Co. Ltd. in Tokyo. ``The risk appetite of Japanese domestic investors has been declining due to the increase of unrealized losses related to domestic equities, and this has prevented them from purchasing new bonds.'' The cost of protecting Japanese corporate bonds from default surged this month by the most since the credit-default-swap indexes were created in 2004. The Markit iTraxx Japan soared 84 basis points to 247 as of yesterday, CMA Datavision prices show. The benchmark was quoted at 245.5 at 9:33 a.m. in Tokyo today, according to Credit Suisse Group AG. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt from default. In a bid to bolster stock markets and stem demand for the yen, the Bank of Japan may halve interest rates today to 0.25 percent, according to the median estimate of economists surveyed by Bloomberg News. Private Banks ``A rate cut won't do anything,'' said Akira Takei, general manager for international bonds who helps oversee the equivalent of $2.46 billion at Mizuho Asset Management in Tokyo. ``The authorities need to inject money into private banks. The banking sector is in a very fragile condition.'' The yen advanced more than 7 percent against the dollar to a 13-year high in October, after falling in five of the prior six months as investors scaled back their holdings to switch into currencies with higher returns. The Group of Seven industrial nations on Oct. 27 said the Japanese currency displayed ``excessive volatility'' and Finance Minister Shoichi Nakagawa said the Japanese government will arrest the gains if needed. ``The yen is very volatile right now and it does make it harder for Japanese companies to make valuations for issuance,'' Mizuho's Takei said. ``We will see further strength in the yen, and it's very difficult for the Japanese authorities but they need to accept this.'' Yen Surges In the past month, Japan's currency also rose 17 percent versus the euro, 27 percent against the Australian dollar and 23 percent versus the New Zealand dollar as investors cut so called carry trades, in which they borrow low interest-rate currencies, seeking to switch funds to obtain higher returns elsewhere. Japan's key rate of 0.5 percent compares with 6 percent in Australia and 6.5 percent in New Zealand. Still, a cut in borrowing costs may help boost Japanese equities and sales of yen corporate bonds may restart in early November, according to Yasuhiro Matsumoto, a credit analyst at Shinsei Securities Co. in Tokyo. ``Investors are waiting for the thunderstorm to pass by and it's only a matter of time before they start issuing new bonds,'' Matsumoto said. ``If the yen weakens and stocks recover, then sentiment will improve and issuers will come back.'' To contact the reporter on this story: Aaron Pan in Hong Kong at Apan8@bloomberg.net

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