New York Sees Gold in Japan’s Yen for Bonds : Debt: Municipal issues in the Japanese currency offer taxpayer savings. The key is a difference in rates.

Cities and states seeking to raise money without stirring taxpayer ire are sure to keep a close eye on New York City’s plan to sell bonds in Japan.

The city is completing a deal to sell up to $150 million in taxable bonds denominated in Japanese yen instead of dollars. Just back from Japan, City Comptroller Elizabeth Holtzman said the bonds, which could reach the market as early as next month, may save the taxpayers millions of dollars over the life of the issues.

The savings figure is based on the difference between U.S. and Japanese interest rates. A perennial shortage of bonds in Japan has made it a seller’s market, so issuers can offer relatively low yields to investors eager to buy any debt they can get their hands on.

Unlike the United States, where issuers typically raise hundreds of billions of dollars a year by selling IOUs to investors, Japan’s market is undeveloped because strict government rules there make it prohibitively expensive to raise money this way.

The dearth has prompted a number of foreign companies to try to sell bonds there. At least one other municipal body, the Kentucky Development Finance Agency, sold $78.9 million worth of yen-denominated debt in 1989 and reportedly saved around $3 million.

New York City already has tapped the Japanese market by selling $24 million in taxable bonds denominated in dollars. Now it hopes to capitalize on the demand-supply imbalance with a yen-denominated deal, seeking ever more novel ways to sell taxable bonds that generally meet less demand from U.S. investors more attracted to tax-free municipal instruments.

Holtzman says the city, which is the nation’s second largest issuer of government bonds after the U.S. Treasury, could save “substantial sums of money.”