BRL-denominated uridashi -- bonds targeted at Japanese retail investors -- rose sharply this year as a percentage of emerging market issuance, even as total uridashi issuance has shrunk, Brown Brothers Harriman data show.
As of last month, BRL-denominated uridashi issuance has comprised more than half of total emerging market uridashi issuance, up from an average share of 29 percent in 2007-2013.
The potential for hefty returns has not escaped the notice of even some traditionally conservative Japanese investors, and market sources with access to institutional flow data cite increased carry-trade activity in recent months.
A senior official at Japan's second-largest private life insurer Dai-ichi Life Insurance Co told a news conference last month the insurer would not buy Japanese government bonds at current low yields and that it added Brazil to its stock and bond portfolios last financial year.
According to Thomson Reuters Eikon's carry trade model, a yen investment in the Brazilian real would have earned more than 7 percent so far this year, with Sharpe ratio of 1.93, a level that suggests a good return in comparison to risk.
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