Japan will provide up to ¥25-billion ($169.42-million) in Samurai financing to Kenya that will be directed towards boosting the East African nation's vehicle assembly and energy sectors, officials said on Thursday.

The agreement was signed by Kenyan Foreign Affairs Minister Musalia Mudavadi and Nippon Export and Investment Insurance CEO Atsuo Kuroda during the Ninth Tokyo International Conference on African Development (TICAD 9), attended by Japanese Prime Minister Shigeru Ishiba and Kenyan President William Ruto.

"This facility will strengthen our local vehicle assembly and parts manufacturing industry while also addressing electricity transmission and distribution losses, currently standing at about 23% of our national output," Mudavadi said in a post on X.

The announcement followed the signing of a term sheet on Wednesday for a yen-denominated loan to Kenya backed by NEXI. Japan's foreign ministry confirmed the loan will be NEXI-guaranteed, a structure designed to lower sovereign funding costs, although specific terms were not disclosed.

Kenya, East Africa's largest economy, has been diversifying its funding sources at a time of global market volatility and higher US interest rates.  

Speaking on the sidelines at TICAD on Thursday, Raphael Otieno, Kenya's director-general of debt management in the ministry of finance, said Nairobi's debt strategy is shifting focus from short-term refinancing risks to addressing high borrowing costs.

"The cost of our debt is very, very high," he said during a panel discussion, noting that Kenya is exploring sustainability-linked bonds with guarantees, yen-denominated "Samurai" bonds, renminbi-denominated "Panda" bonds, and debt swaps to reduce expensive obligations.

He added that the Treasury recently prepaid some domestic bonds and plans further such operations.

When asked whether future yen- or renminbi-linked borrowings would be hedged, Otieno said the exposures would remain unhedged for now, but would be monitored as part of Kenya's annual debt-management strategy.