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    BOJ Deputy Governor Speaks on Interest Rate Benchmark Reform in Japan

    February 19, 2020

    The Deputy Governor of BOJ Masayoshi Amamiya spoke in Tokyo about how Japan should proceed with interest rate benchmark reform over the next two years until the end of 2021, when the discontinuation of LIBOR is expected. He focused on initiatives by individual companies, initiatives by the entire market, and the role of the public sector in Japan.

    Mr. Amamiya mentioned that the users of interest rate benchmarks, such as financial institutions, institutional investors, and non-financial corporates, are required to change their LIBOR-based operations and organizational structures to a framework based on alternative benchmarks. It is necessary to not only simply examine the exposure of LIBOR-based transactions but also how LIBOR is used in various areas, including accounting and risk management. In addition, it will be required to establish a governance framework, including specific section focusing on the transition to alternative benchmarks, and secure internal resources, including staff and budgets, while the extent of the preparation may differ from one institution to another.

    He highlighted that it is important to promote market-wide initiatives, including the establishment of alternative benchmarks to LIBOR and the development of market practices, to encourage individual actions by market participants and interest rate benchmark users. For the Japanese yen, there is a great deal of support for the term reference rate to be used as an alternative benchmark to JPY LIBOR. As a first step, the entity is going to start publishing "prototype rates," which do not presume use in actual transactions. Through the publication of prototype rates, it is expected that the entire market will transition smoothly from JPY LIBOR to the term reference rate, as individual steps are taken to prepare for transactions using that alternative benchmark. Following that, the aim is to publish "production rates" of the term reference rate no later than mid-2021, with an assumption that these will be used in actual transactions.

    The Deputy Governor said that in relation to the initiatives by individual companies and the entire market, it is important for the public sector to have the perspective of ensuring the formation of fair prices and the stability of financial transactions in financial markets, both before and after the discontinuation of LIBOR. It is very important for both the private and public sectors to keep in mind the timeline of when the discontinuation of LIBOR is expected—that is, up to the end of 2021. To accomplish the interest rate benchmark reform by also utilizing the results of past deliberations, it is necessary for all relevant parties in the private and public sectors to steadily implement measures while appropriately cooperating with each other by keeping in mind the limited time until the end of 2021.


    Related Link: Speech


    Keywords: Asia Pacific, Japan, Banking, Securities, Interest Rate Benchmarks, LIBOR, Benchmark Reforms, IBOR Reform, BOJ, BIS

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