The continuing “gold rush” into Japan’s massive debt markets by the languishing leviathans of Wall Street and the City has culminated in Citigroup issuing the biggest samurai bond in history.

But unlike other samurai bond launches, Citigroup’s debt will be sold directly to Japanese individual investors, playing to a sharp appetite for yield now that their vast savings are effectively losing money sitting in the Post Office.

The bond is being issued as Japanese households are losing faith in the ability of their traditional bank savings to support them in future as health and other costs rise and wages remain flat.

The Citigroup gambit also comes as leading financial groups in the US and Europe are battling with the capital drought triggered by the global credit crisis. For more than a year since the US sub-prime debacle blew up, the biggest names in international banking have turned to Japan for salvation in the form of the samurai — yen-denominated bonds sold in Japan by foreign institutions.

The Citigroup samurai, which eclipses its June issuance of 185 billion yen, is to raise 315 billion yen (£1.65 billion) and will exploit the relatively low rates at which debt can be raised in Tokyo and the hunger of Japanese investors for non-Japanese assets.

With official Japanese interest rates locked at 0.5 per cent and with little immediate prospect of a rise by the Bank of Japan, the 3.22 per cent coupon rate on Citigroup’s bond is expected to prove attractive.

As the credit crunch has deepened, the likes of Goldman Sachs, Royal Bank of Scotland and UBS have raised capital through samurai issuance, in some cases returning to the Japanese debt market after absences of several years.

But it is a market that has also been eagerly tapped in recent months by a variety of non-traditional samurai players, including financial groups from Canada, Australia, India, South Korea and the Netherlands, which had never dipped their toes into the Japanese bond market before.

Meanwhile Japanese households are being encouraged by their Government to take on greater investment risk with their £7 trillion stash of financial assets. In a recently published White Paper, the Government attempted to persuade the ultra-conservative Japanese middle class to seek out assets that promise higher returns.

That quest for yield has begun and a record 10 trillion yen of Japanese household assets are now non-Japanese. UBS recently created a Brazilian bond mutual fund offering 14 per cent returns, aimed squarely at retail investors. It was fully subscribed within a few days raising around $3 billion (£1.7 billion).

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