-- Tokyo Metropolitan Government considering sale of dollar-denominated bonds for first time since 2001 -- Costs of issuing dollar bonds near record low -- Tokyo may sell dollar bonds if primary bond market gets more active By Megumi Fujikawa Of DOW JONES NEWSWIRES TOKYO (Dow Jones)--The Tokyo Metropolitan Government is considering issuing dollar-denominated bonds for the first time in 10 years, in a move that would likely broaden popular investment targets for Japanese institutions who have recently been starved for choice. The metropolitan government has already said it plans to issue up to Y50 billion of foreign-currency bonds in the current fiscal year ending in March 2012--depending on market conditions--making this a likely time frame for the possible dollar-denominated bond issuance. "Since we would have to convert any proceeds into the yen eventually, the decision of whether to issue these bonds would depend on swap rates at the time," Yoshiko Aida, director of the bond section at Tokyo Metropolitan Government's bureau of finance, told Dow Jones Newswires in a recent interview. "The current cost of (dollar) swaps seems to be good value," she said, pointing out that "it would be difficult to explain the issuance of foreign currency-denominated bonds unless the issuing costs are cheaper than those of domestic bonds." The five-year dollar-yen basis swap rate, which represents the cost of exchanging interest payments from the dollar to the yen, has been hovering around a record low. It was at minus 73.25 basis points on Tuesday. A decline in swap rates means Japanese borrowers can sell dollar bonds and repatriate the proceeds to the yen at lower costs. Tokyo's move, if realized, would offer domestic investors an alternative choice of relatively safe credit investments. The greater choice is particularly significant at this time as corporate bond issuance by power companies, which used to be very popular among institutional investors, has dried to a trickle in the aftermath of the March 11 earthquake and tsunami. The disasters triggered Japan's worst nuclear accident at the Fukushima Daiichi power plant operated by Tokyo Electric Power Co. Inc. (9501.TO), and subsequent nuclear safety concerns have greatly reduced the scope for bond issuance by power utilities. The government of Tokyo, whose debt is rated AA- by Standard & Poor's, last issued dollar bonds in 2001 and euro-denominated debt in 2008. But the metropolitan government has refrained from floating foreign bonds, as the primary bond market has been unsettled due to the aftermath of the Lehman shock. "Perhaps, we might sell dollar bonds if bond issuance becomes more active and the levels investors want become clearer, under the current swap conditions," Aida said. However, "because market conditions are unstable and it is unclear how much risk investors are willing to take on Tokyo metropolitan government bonds, we are still uncertain whether we will be able to issue dollar bonds" this fiscal year, she said. -By Megumi Fujikawa, Dow Jones Newswires; 813-6269-2786; megumi.fujikawa@dowjones.com

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