Negative Rates Prompt Japan Banks to Opt Out Via Derivatives
- ‘Demand will increase’ for products to hedge: Tokyo Star Bank
- Three-month Tokyo interbank rate at record low 6 basis points
A pedestrian looks at an electronic stock board outside a securities firm in Tokyo, Japan, on Wednesday, Jan. 20, 2016. Japanese stocks plunged into a bear market amid a slump in equities across Asia as investor concerns over the global economic outlook outweighed technical signs that a China-fueled rout has gone too far.
Photographer: Kiyoshi Ota/BloombergJapanese banks reluctant to pay for the privilege of lending are opting out by using derivatives.
The options set a floor on rates used to determine interest on loans, and the holder will be paid if the rates fall below that level, according to Aozora Bank Ltd. and Tokyo Star Bank Ltd. The benchmark three-month Tokyo interbank offered rate has plunged to a record low of 6 basis points since the Bank of Japan announced it would start charging fees on some lenders’ reserves in January. Options with floors at zero percent or minus rates have been traded recently, according to Aozora Bank.