Trading of 3-month TONA Futures, the short-term interest rate futures listed on the Osaka Exchange (OSE), has been increasing, backed by the lifting of negative interest rates, the expectations for further changes in BoJ monetary policy, and the introduction of a cross-margining system between TONA futures and JSCC-cleared interest rate swaps since March 2024.
The diversity of investors has been increasing, with domestic and foreign institutional investors accumulating open interest for hedging or speculation purposes. The average daily trading volume in 2024 was 7,566 contracts, with open interest steadily building up to 38,912 lots as of June 6, 2024.
The below graph shows the rates calculated from the settlement prices of TONA futures, showing a significant steepening of the curve compared to a year ago and earlier this year, when the negative interest rate policy was still in place.
The June 2024 contract (interest rate reference period: 6/19/2024 - 9/17/2024) and the December 2024 contract (interest rate reference period: 12/18/2024 - 3/18/2025) each had open interest balances exceeding 10,000 contracts, suggesting that trading triggered by the BoJ monetary policy meeting increased.
*Note: implied rates for TONA Futures are calculated as “100 - settlement price”
BoJ has announced at its Monetary Policy Meeting that it will encourage TONA to remain at around 0 to 0.1%, and, as shown in the Implied Rates graph above, the nearby 3-month TONA implied rate for the March 2024 contract (interest rate reference period: 2024/3/20 - 2024/6/18) stands at 0.0775%, within the 0 to 0.1% target range. On the other hand, the TONA 3-month rate implied for the June 2024 contract (interest rate reference period: 6/19/2024 - 9/17/2024) and thereafter is above 0.1%, suggesting that the market has incorporated some level of a rate hike, although there are differences among the contract months.
In this way, prices of TONA futures can be used as a tool to assist in forecasting future short-term interest rates as they are factored into the market. In addition to providing such a price discovery function, OSE will continue to improve the market’s convenience and support the smooth entry of domestic and foreign institutional investors to further fulfill its role in providing a risk management tool for yen interest rates.
For more information on 3-Month TONA Futures, click on the link below.
JPX Website > Derivatives > Products > Interest Rate > 3-Month TONA Futures