Graphs and charts nearly always have a story to tell and those included in this edition of IQ, drawn from the Bank for International Settlements’ triennial turnover survey, are no exception.
Since 2010, average daily turnover in Asia Pacific’s foreign exchange (FX) and interest rate derivatives markets has increased steadily, reaching $1.9 trillion and $685 billion, respectively, in 2022. Yet Japan’s share of those markets has dropped over the same period, falling from 27% to 15% for FX derivatives and from 44% to 7% for interest rate derivatives. It seems surprising that a country with an advanced economy and a sophisticated financial market, which once led the region in FX and interest rate derivatives, should have fallen behind other centers like Hong Kong and Singapore.
Multiple factors may lie behind this trend, but an extended period of unconventional monetary policy has certainly played its part. Between 2016 and 2024, the Bank of Japan (BoJ) maintained negative interest rates and control of the yield curve. Both policies came to an end on March 19 following the BoJ’s latest monetary policy meeting, which could pave the way for more active trading and investment to resume, likely driving an increase in derivatives market turnover.
For market participants, the BoJ policy shift brings both opportunities and challenges. A reversal of the yen’s depreciation and increased demand for Japanese government bonds will create a more normal market environment, with greater need for hedging and risk management. But after such a long period of abnormal market conditions, there is now a scarcity of practitioners with experience of normality.
Meanwhile, several regulatory changes are due to be implemented this year, including the final parts of the Basel III framework and changes to derivatives reporting rules. In an interview with IQ, Shigeru Ariizumi, vice minister for international affairs at Japan’s Financial Services Agency and vice-chair of the International Organization of Securities Commissions, sets out the domestic and global regulatory priorities.
Amid these landmark policy changes and regulatory deadlines, ISDA’s 38th Annual General Meeting takes place in Tokyo on April 16-18, with an agenda that will cover the key issues affecting both Japanese and global derivatives markets.
Documents (1) for New Blossom – IQ March 2024
Latest
Response on Proposed Changes to Transaction Rules
On May 22, ISDA and the Global Foreign Exchange Division (GFXD) of the Global Financial Markets Association submitted a joint response to the Australian Securities and Investments Commission's (ASIC) consultation on proposed changes to the ASIC Derivative Transaction Rules (Reporting)...
EBA FRTB-ASA Benchmarking Support for Newly In-scope Banks
A new regulatory requirement is expected to bring additional EU banks into scope for submitting Fundamental Review of the Trading Book (FRTB) Alternative Standardized Approach (ASA) capital as part of the European Banking Authority’s (EBA) benchmarking exercise. ISDA Capital Models...
Joint Letter on Sunset of Swaps TR Rules
On May 20, ISDA, FIA and the Securities Industry and Financial Markets Association (SIFMA) submitted a joint letter to US Commodity Futures Trading Commission (CFTC) to request the CFTC to sunset large trader reporting rules (LTR) rules for physical commodity...
ISDA, SIFMA Letter on SEC-CFTC Harmonization
On May 19, ISDA and the Securities Industry and Financial Markets Association (SIFMA) submitted a joint letter to the US Securities and Exchange Commission (SEC) and the US Commodity Futures Trading Commission (CFTC) on SEC and CFTC harmonization, as part...
