OSE 3-Month TONA Futures and BOJ Monetary Policy

On 19 March 2024, the Bank of Japan finally abandoned its policy framework of yield curve control and negative interest rates. However, international financial markets have evolved dramatically since the last rate hike in 2007. Most notably, derivative instruments indexed to LIBOR have been phased out, and Euroyen TIBOR is scheduled to disappear by the end of 2024. In light of these developments, this paper provides an overview of the Japanese alternative risk-free rate, TONA, and the OSE 3-month TONA futures, which was launched by Osaka Exchange (part of JPX) on 29 May 2023. Through the lens of three hypothetical case studies, the paper provides an insight into how the Japanese “product menu” has changed and what it means for traders, investors, and other market observers taking a view on the next move by the Bank of Japan.