Hike bets are rousing Japan's rates market (updated)
04/07/2024 14:03
(Updates to add total trading value in paragraph 5)
By Junko Fujita
TOKYO, July 4 (Reuters) - Trade in short-term Japanese
interest rate swaps is breaking records and newly-launched
futures turnover is surging, as speculators and investors'
hedging revive a once-sleepy market.
BY THE NUMBERS
The notional value of yen contracts for two years or below
in the swaps market has hit 865 trillion yen ($5.4 trillion) for
the year so far, already exceeding last year's record of 525
trillion, according to the Japan Securities Clearing
Corporation.
Three-month TONA futures JTOAc1 launched in May last year
on the Osaka exchange and in 2023, large firms with capital over
3 billion yen traded 3.4 trillion yen in total.
Already over the five months to May this year, that figure
was 3.3 trillion yen, according to Japan Exchange Group
8697.T .
If smaller firms are included, turnover in May alone stood
at 3.8 trillion yen, up from 221 billion yen a year ago and open
interest for the month was a record of more than 45,000
contracts.
WHY IT'S IMPORTANT
The rising volumes show life and liquidity returning to a
market that was fallow for years while Japanese rates remained
below zero and barely moved.
CONTEXT
Japan ended eight years of negative interest rates in March
in an historic policy shift and markets see rates volatility
ahead.
Swaps imply another 20 basis points of hikes in Japan's
short-term interest rate this year. Above-target inflation and a
weak yen that is putting upward pressure on import prices are
driving speculation of even more hikes and demand for hedging
interest rate risk that was largely absent in years past.
"If the BOJ's policy rates stay in a definitely positive
territory, there will be more needs for rate hedging," said
Tomohiro Mikajiri, head of yen and non-yen fixed income trading
in Japan for Barclays.
($1 = 161.3600 yen)
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(Editing by Tom Westbrook and David Holmes)
((junko.fujita@thomsonreuters.com))