This article is more than 2 years old.

November 1, 2016 This article is more than 2 years old.

The Indian rupee is bonding pretty well with the Japanese.

This year, Japanese households have bought rupee-linked bonds like never before, according to Bloomberg.

Bonds denominated in foreign currency are known as Uridashi bonds, and are specifically sold to Japanese household investors. Some $1.45 billion worth of Uridashi notes in Indian rupee denomination were sold this year, Bloomberg reported last week. With this, India has overtaken Turkey and New Zealand to grab a spot in the top five nations for Uridashi bonds.

The Japanese are making big bets on the Indian currency because the potential return is estimated to be better than other developing economies.

“Investors may prefer rupee Uridashi because India’s recent performance is better than other high interest-rate currency countries, implying that the risk of rupee might be lower than other currencies,” Toru Suehiro, a Tokyo-based senior market economist at Mizuho Securities, told Bloomberg.

Negative interest rates in Japan have forced individuals to look outside the country for investments and returns. The Indian rupee is estimated to appreciate by 8.1% against the Japanese Yen by the end of 2017, a Bloomberg survey found.

The Indian rupee has been one of the best performing currencies among emerging markets, despite external risks. Moreover, the Indian economy’s standout growth rate of 7.6% has made Asia’s third-largest economy a star performer.

Why issue rupee-linked bonds?

Indian companies typically raise money from rupee-linked bonds for infrastructure development. Banks also issue these to maintain their capital requirements. Multilateral agencies, too, have been issuing rupee-linked bonds lately. For instance, the International Finance Corporation (IFC) launched its first Uridashi Masala bonds, in March this year, to raise some Rs30 crore from Japanese investors.

“Our latest bond opens up a new source of local-currency finance for businesses in India while enabling Japanese household investors to participate in the development of one of the world’s fastest-growing economies,” Jingdong Hua, vice president and treasurer at the IFC, said in a statement when the bonds were announced.

Overall, the funds raised through rupee-linked bonds are seeing a drop. In the first nine months of 2016, rupee-denominated bonds raised Rs2.1 lakh crore, a fall of 16.1% from the same period a year ago, according to data released by Thomson Reuters on Oct. 03.