The Euro-yen (overseas yen) trade rate between Tokyo banks (TIBOR), which is traded in the offshore market, continues to be negative. Three-month products have been negative for about three months since the second half of April, and six-month products have been negative for three weeks since the beginning of July. TIBOR has been regarded as the standard interest rate for lending, and it has been thought that it will not fall to a negative level. However, the fact that TIBOR's presence is decreasing due to the interest rate index reform toward the end of 2021 has led to a negative normalization. It seems

■Are there more financial institutions offering negative interest rates?

According to the JBA TIBOR management organization, the 3-month overseas Yen TIBOR fell to minus 0.04800% on April 23, and fell into the minus range for the first time. The negative range is widening at minus 0.06500%. The 6-month product has remained at a negative 0.02400% since July 1st, the lowest level ever.

TIBOR is announced by the JBA TIBOR management organization based on the interest rates calculated and presented by 14 financial institutions such as megabanks. If TIBOR becomes negative, it may lead to loans to companies at negative interest rates, so the view that "it is not limited to the Japanese yen and not to the foreign yen" prevails in the market. Was there.

The TIBOR announced by the operating organization is an average of the offered interest rates, excluding the highest and lowest interest rates, and it is believed that the number of financial institutions offering negative rates is increasing. At first glance, it could be interpreted that banks allowed lending at negative interest rates, but the Japanese yen TIBOR, which is easy to use as a lending standard, remains positive and only the overseas yen is negative.

■Reform of interest rate index “small presence of TIBOR”

Then why is the overseas yen TIBOR negative? Bank officials said, "The method of calculating TIBOR is strictly determined, and there is no room to arbitrarily manipulate interest rates." Among them, the reason is the interest rate index reform in preparation for the suspension of the London interbank transaction interest rate (LIBOR) announcement at the end of 2021. In Japan, a review committee with the BOJ as the secretariat has been established to discuss alternative indicators after the abolition of LIBOR.

Only 30% of the respondents cite TIBOR as an alternative index for lending in the city consultations. The most popular item was the Term Risk Free Rate (RFR), with the approval rate exceeding 60%. For the term RFR, the financial information company QUICK, which was selected as the calculation and publication body, has begun to publish the reference value in late May.

"There is a relatively small presence of TIBOR as a base interest rate," said a move to term instruments RFR, said a person related to the short-term market. In particular, the foreign yen TIBOR is said to be "less likely to serve as a lending standard compared to the Japanese yen TIBOR," and its interest rate index is rapidly decreasing.

Overseas yen TIBOR is calculated based on the interest rate in the offshore market, where financial institutions trade yen funds with overseas financial institutions. According to people involved in the short-term market, "the current offshore market is low in liquidity. Transaction is difficult to complete." In addition to the decline in TIBOR's presence, one bank official said, "Liquidity will drop and the negative "outlier" will not be corrected in the market."

The foreign yen TIBOR was also used in arbitrage trading of yen interest rate futures that projected future policy rates. However, the long-term BOJ's low interest rate policy has not seen an exit, and "yen interest rate futures trading remains sluggish amidst the prospect of interest rate fluctuations" (Tokyo Financial Exchange). The overseas yen TIBOR, which has finally sunk negatively due to the interest rate index reform and the Bank of Japan's monetary easing, may be ending its role in the market.