A surge of yen-denominated bonds by foreign nationals and a perceived reduction in dollar supply are making it costlier to swap yen funds to the U.S. currency.

Three-month basis swaps for dollar-yen dropped to negative 53.5 basis points on Thursday, a level not seen since November 2023, meaning investors using yen to obtain dollar funding had to accept steeper discounts on Japanese interest rates. Five-year swap contracts fell to the lowest in almost two months this week.

A lack of dollars helped drive down short-dated basis swaps, while rising issuances of samurai bonds impacted longer swaps, according to Shoki Omori, chief desk strategist at Mizuho Securities Co.

Romania was the latest foreign issuer getting funds from the samurai bond market, raising ¥33 billion ($225 million) from a multi-tranche deal on Friday. samurai bond issuance has picked up since the start of September, after dovish monetary signals from authorities. It has since surpassed ¥374 billion, the most since 2018 for this period, according to data compiled by Bloomberg.

Romania’s move followed sales by Hungary and Slovenia, which have recently issued debt in the Japanese currency. “Quite a lot” of samurai issuance creates demand for issuers to convert the proceeds into dollars, according to Omori.

Prime Minister Shigeru Ishiba appears to have shifted his views on monetary policy. He triggered a sharp yen slide on Wednesday after saying Japan wasn’t ready for interest rate hikes. He then said that he was aligned with Bank of Japan Gov. Kazuo Ueda’s view that there was time to assess the situation before making any changes to rates.

Local investors bought Japanese treasury bills on Ishiba’s initial comments, Tokyo-based Omori said. “Then, not much supply is left for overseas investors,” who typically offer dollars to finance purchases of T-bills in the funding market, helping contain the dollar-yen basis swap, he said.

Three-month cross-currency basis swaps also have a strong tendency to drop in September as the contracts cover the year-end when banks typically tighten fund supply due to regulatory reasons.