The Tokyo Financial Exchange will launch a new futures contract tied to the Bank of Japan's overnight call rate this month, aiming to help traders hedge rising volatility as a more activist central bank reshapes Japan's rate markets. The announcement came on Thursday.
Why the new contract exists
The new futures let traders take positions on rate moves between central-bank policy meetings. The exchange said its existing three-month TONA futures contract has not matched demand from traders looking to hedge expectations driven by each BOJ decision. Ryosuke Seo, a director in the exchange's wholesale business department, said interest rate moves have become more active lately and demand for derivatives trading has risen.
A faster-moving BOJ
The BOJ last month raised its key policy rate for the second time this year to a 31-year high of 1.25%, and markets widely expect another hike by December — a much quicker pace than the roughly six-month gaps between increases seen previously. The bank ended negative interest rates in 2024, and the three-month TONA futures were introduced in 2023, a year earlier, at both the Tokyo Financial Exchange and the Osaka Exchange, a unit of Japan Exchange Group.
Trading in the three-month TONA futures has declined even as markets price in further hikes: September volume fell nearly 50% from a year earlier, according to the exchange.
Competition for hedging demand
The exchanges compete with the far larger over-the-counter market for interest-rate swaps. The notional value of yen overnight-index-swap contracts of up to 30 years and beyond rose to a record high last month, according to Japan Securities Clearing Corp. Swap rates covering the periods between BOJ meetings are widely used to gauge the likelihood of a rate increase, and the new listed contract is designed to give traders an exchange-traded way to play that.
Sources:
Reuters: Tokyo Financial Exchange launches new BOJ rate futures as policy shifts accelerate
Channel News Asia: Tokyo Financial Exchange launches new BOJ rate futures as policy shifts accelerate
Why the new contract exists
The new futures let traders take positions on rate moves between central-bank policy meetings. The exchange said its existing three-month TONA futures contract has not matched demand from traders looking to hedge expectations driven by each BOJ decision. Ryosuke Seo, a director in the exchange's wholesale business department, said interest rate moves have become more active lately and demand for derivatives trading has risen.
A faster-moving BOJ
The BOJ last month raised its key policy rate for the second time this year to a 31-year high of 1.25%, and markets widely expect another hike by December — a much quicker pace than the roughly six-month gaps between increases seen previously. The bank ended negative interest rates in 2024, and the three-month TONA futures were introduced in 2023, a year earlier, at both the Tokyo Financial Exchange and the Osaka Exchange, a unit of Japan Exchange Group.
Trading in the three-month TONA futures has declined even as markets price in further hikes: September volume fell nearly 50% from a year earlier, according to the exchange.
Competition for hedging demand
The exchanges compete with the far larger over-the-counter market for interest-rate swaps. The notional value of yen overnight-index-swap contracts of up to 30 years and beyond rose to a record high last month, according to Japan Securities Clearing Corp. Swap rates covering the periods between BOJ meetings are widely used to gauge the likelihood of a rate increase, and the new listed contract is designed to give traders an exchange-traded way to play that.
Sources:
Reuters: Tokyo Financial Exchange launches new BOJ rate futures as policy shifts accelerate
Channel News Asia: Tokyo Financial Exchange launches new BOJ rate futures as policy shifts accelerate
