Japan’s term RFR toil may mean bigger Tibor role

Derivatives-based methods for constructing curve unpopular amid negative rate environment

Bank of Japan’s negative rates are hampering development of term risk-free rate

Japan’s enduring negative interest rate environment could thwart efforts to build a term version of the overnight rate that has been selected as the market’s risk-free benchmark, dealers say.

A Bank of Japan working group is exploring ways to create a forward-looking curve for Tonar – the Tokyo overnight average rate – the benchmark chosen to replace yen Libor.

Two methods under consideration in other major currencies – deriving term rates from the prices of futures that reference the