Tokyo Financial Exchange adds overnight BOJ rate futures amid faster policy moves

The Tokyo Financial Exchange announced the introduction of a futures contract based on the Bank of Japan's overnight call rate, scheduled for launch later this month. This product is intended to give traders a tool for hedging against the increased volatility that has followed the BOJ's more aggressive rate-setting pace, including a recent hike to a 31-year high of 1.25%. The exchange noted that its three-month TONA futures, introduced in 2023, have seen trading volumes drop by almost half year-over-year, despite expectations of further rate hikes.

Ryosuke Seo, a director in the wholesale business department, said demand for derivatives has risen as interest-rate moves become more frequent. The new contract joins existing futures on the Tokyo and Osaka Exchanges and competes with a growing over-the-counter market for overnight index swaps, whose notional values have reached record levels.