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Recent Development of the OIS (Overnight Index Swap) Market in Japan

Author

Listed:
  • Eiko Ooka

    (Bank of Japan)

  • Teppei Nagano

    (Bank of Japan)

  • Naohiko Baba

    (Bank of Japan)

Abstract

As short-term interest rates have become higher and more volatile since the end of the quantitative easing policy in March 2006, an interest rate swap, referred to as an OIS (Overnight Index Swap), which exchanges the uncollateralized overnight call rate over a specified period and a certain fixed interest rate, has begun to be traded actively. The use of the OIS enables financial institutions to conduct more finelytuned risk management than other conventional hedging tools. The OIS also provides an effective way to monitor market perceptions about the Bank of Japan's monetary policy. For the time being, participants in the Japanese OIS market are almost entirely limited to overseas financial institutions. With growth in needs to hedge interest rate risks and to conduct arbitrage transactions, an increasing number of financial institutions are likely to enter the market, thus making the market more liquid.

Suggested Citation

  • Eiko Ooka & Teppei Nagano & Naohiko Baba, 2006. "Recent Development of the OIS (Overnight Index Swap) Market in Japan," Bank of Japan Review Series 06-E-4, Bank of Japan.
    • Handle: RePEc:boj:bojrev:06-e-4
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    File URL: http://www.boj.or.jp/en/research/wps_rev/rev_2006/data/rev06e04.pdf
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    Cited by:

    1. Lloyd, S. P., 2017. "Overnight Indexed Swap Market-Based Measures of Monetary Policy Expectations," Cambridge Working Papers in Economics 1733, Faculty of Economics, University of Cambridge.
    2. Yoichi Ueno & Naohiko Baba & Yuji Sakurai, 2006. "The Use of the Black Model of Interest Rates as Options for Monitoring the JGB Market Expectations," Bank of Japan Working Paper Series 06-E-15, Bank of Japan.
    3. Nagano, Teppei & Baba, Naohiko, 2008. "Extracting market expectations from yield curves augmented by money market interest rates: the case of Japan," Working Paper Series 980, European Central Bank.

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