OIS TONA curve and JPY discounting

TL;DR

A JPY overnight indexed swap (OIS) is an OTC interest-rate derivative in which one party pays a fixed rate over a defined tenor and the counterparty pays the geometric (compounded) average of the daily Tokyo Overnight Average Rate (TONA) over the same period. TONA is the BoJ-published volume-weighted average of uncollateralized overnight call transactions and is the designated risk-free rate (RFR) for the JPY currency under the global IBOR transition.

Post-LIBOR (cessation December 2021 for JPY LIBOR, with the synthetic JPY LIBOR phase-out completed in 2023), TONA-referencing OIS is the canonical discount curve for yen derivatives — both for OIS pricing itself and as the discount factor used in collateralized JPY IRS (see japan-irs-market), JPY-USD basis swaps (see yen-basis-swap-market), JPY-denominated CCP-cleared trades, and CSA-collateralized OTC bookings posted in JPY cash.

For FinWiki, the OIS-TONA curve is the price expression of BoJ short-rate policy expectations, the discount curve underneath every JPY-priced derivative, and the most direct visible market read on near-term BoJ rate decisions.

Wiki route

This entry sits under derivatives index. Read it against japan-irs-market for the longer-dated tenor curve, jgb-futures-curve for the JGB-implied rate curve, and yen-basis-swap-market for how the OIS curve interacts with cross-currency funding. The underlying TONA cash mechanism is call-market-structure and the BoJ policy implementation is boj-open-market-operations.

TONA — The Underlying Rate

TONA is calculated and published daily by the Bank of Japan based on uncollateralized overnight call transactions:

Element	Detail
Full name	Tokyo Overnight Average Rate (無担保コールオーバーナイト物加重平均レート).
Calculator and publisher	Bank of Japan.
Underlying transactions	Uncollateralized overnight call-market trades brokered through tanshi companies and reported to BoJ.
Method	Volume-weighted mean of qualifying overnight transactions on each business day.
Publication	Published the next business day (T+1) by BoJ; previously also disseminated as TONAR / Tokyo Overnight Average Rate.
Reset	Daily; no term structure inherent to the rate itself.
Currency / convention	Japanese yen; ACT/365 day-count by convention for JPY money-market.

TONA replaced JPY LIBOR as the designated RFR under the IBOR transition coordinated by the Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks (a public-private body convened with BoJ and FSA participation). The transition followed the Financial Stability Board (FSB) recommendation for currency-by-currency RFR adoption.

Because TONA reflects actual unsecured overnight transactions (the same market detailed in call-market-structure), it is robust against the manipulation risks that ended LIBOR. It is, however, sensitive to BoJ policy implementation: if BoJ ample-reserves policy depresses call activity, TONA volume can shrink and the rate becomes thinner in some periods.

Post-LIBOR Transition

The JPY LIBOR transition occurred along a coordinated timeline:

Year	Event
2017	UK FCA announced LIBOR cessation by end-2021.
2018	Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks formed under BoJ / FSA / industry participation.
2018–2021	Migration of new JPY swap and loan business to TONA reference; legacy JPY LIBOR contracts amended or fallback-protocoled via ISDA 2020 Fallback Protocol.
End-2021	JPY LIBOR ceased on a representative basis. Synthetic JPY LIBOR (FCA-administered, non-representative) introduced for some legacy 1M, 3M, 6M tenors as a wind-down bridge.
2023	Synthetic JPY LIBOR ceased. All JPY-rate derivatives reference TONA (or in select cases, TIBOR for term-fixing markets).
Ongoing	TIBOR (Tokyo Interbank Offered Rate) survives for some JPY-denominated loan and bond products requiring a term fix; D-TIBOR and Z-TIBOR are administered by Japanese Bankers Association TIBOR Administration (JBATA).

The transition outcome: yen IRS markets, OIS markets, and CSA-collateralized OTC derivatives now use TONA as the underlying floating reference and discount rate. JPY LIBOR derivatives that were transitioned via ISDA fallback now reference TONA-compounded-in-arrears plus a fixed credit-adjustment spread (CAS).

BoJ Policy-Rate Transmission

The OIS-TONA curve is the most direct market expression of expected BoJ overnight rate over the curve’s tenor:

Tenor	What the OIS rate expresses
1W, 1M, 3M OIS	Near-term BoJ rate expectations through the next 1–2 Monetary Policy Meetings (MPMs).
6M, 1Y OIS	Expected BoJ rate path including possible MPM hikes / cuts over the next 12 months.
2Y, 3Y, 5Y OIS	Medium-term policy path; reflects MPM trajectory plus a small term premium.
10Y, 20Y, 30Y OIS	Long-horizon equilibrium rate expectations plus term premium; less liquid than the IRS curve at the same tenor.

Movements in 1Y or 2Y OIS rates around MPM dates are the most-watched signal of policy surprise. After the March 2024 BoJ regime shift exiting negative rates and YCC, the OIS curve repriced rapidly to reflect a probable rate-normalization path; subsequent OIS moves around each MPM have been closely watched.

The relationship between OIS-TONA and the policy rate guideline is:

The policy rate guideline (uncollateralized overnight call rate around target) sets a near-zero floor that TONA tracks daily.
OIS forward rates embed the probability-weighted expectation of where BoJ will set the policy rate over each tenor.
Differences between observed TONA and the implied OIS forward at the same horizon reveal repricing of policy expectations between MPMs.

See boj-monetary-policy (where present) and boj-open-market-operations for the policy implementation layer; this entry covers the derivative expression.

OIS Curve Construction

A market practitioner builds the JPY OIS-TONA curve as follows:

Step	Input
1. Spot	Today’s TONA fixing (T-1 published rate) anchored to the BoJ policy guideline.
2. Short end	OIS rates for 1W, 2W, 1M, 2M, 3M tenors from interdealer quotes.
3. Medium tenor	OIS rates for 6M, 9M, 1Y, 18M, 2Y, 3Y.
4. Long end	OIS rates for 5Y, 7Y, 10Y, 15Y, 20Y, 30Y, where liquidity supports quotes.
5. Bootstrap	Solve for the discount-factor curve D(t) such that each input OIS rate prices to par; iterate forward.
6. Smoothing	Apply a smoothing interpolation (cubic spline, monotone cubic, or piecewise linear in log-discount) consistent with the dealer’s pricing model.

The resulting discount curve D(t) is used to:

price new OIS trades at par;
discount future cash flows on collateralized JPY swaps (the “OIS discounting” convention adopted post-2010);
compute present value (PV) of CSA-collateralized JPY exposures;
mark-to-market JSCC-cleared JPY IRS positions (JSCC uses TONA-OIS discounting for JPY-cleared products).

For non-collateralized or differently-collateralized trades, the discount curve is adjusted by a funding-valuation adjustment (FVA) or by switching to a different collateral-rate curve. This is the “multi-curve framework” that became standard after 2010.

Swap-Rate Discount Curve for JPY-IRS

The JPY-IRS market (see japan-irs-market) is dual-curve in pricing:

Curve	Purpose
TONA-OIS	Discount curve — used to PV future cash flows.
TONA forward curve	Projection curve — used to forecast future TONA floating-leg resets.
(Historic) TIBOR forward curve	For TIBOR-referencing legacy IRS, used to forecast 1M / 3M / 6M TIBOR resets; PV is still done on TONA-OIS.

This dual-curve framework means even a TIBOR-floating IRS uses the TONA-OIS curve for discounting if the trade is collateralized in JPY cash under standard CSA terms. The TIBOR-TONA basis is reflected in a separate basis-swap quote (TIBOR vs TONA OIS, in bp).

Market Depth and Liquidity

Tenor band	Liquidity assessment
1M–6M	Very liquid; tight bid-ask (sub-1 bp typical).
1Y–3Y	Liquid; the most-traded MPM-expectations tenor.
5Y–10Y	Liquid for institutional flow; bid-ask 1–2 bp typical.
15Y–30Y	Less liquid in OIS form than in TIBOR IRS or JGB-cash form; bid-ask wider.

Notional outstanding for JPY OIS is multi-trillion JPY-equivalent on an aggregate basis (BIS OTC derivatives statistics aggregate it within the JPY IRS / OIS category). JSCC clears the bulk of cleared JPY OIS; non-cleared bilateral OIS exists for non-standard tenors and structured trades.

Dealer Makers

Participant	Role
Japanese megabank securities affiliates (MUFG Securities, SMBC Nikko, Mizuho Securities)	Major makers in JPY OIS; serve domestic banks, insurers, and corporates.
Global dealers (JPMorgan, Goldman, Citi, Deutsche, BNP, Barclays, HSBC)	Two-sided market makers especially in cross-border flow and CCBS-adjacent trades.
Independent securities firms (Nomura, Daiwa)	Domestic franchise plus cross-border.
Inter-dealer brokers (Tradition, BGC, ICAP, Tullett Prebon)	Provide indicative pricing and execute IDB flow.
End users	Japanese megabanks (treasury hedging), regional banks, life insurers, asset managers, corporates, foreign accounts taking views on BoJ policy.

Megabank dealing affiliates intersect with cash money market intermediation; see tanshi-company-business-model for the tanshi side and japan-banking-license-tier-comparison-matrix for the regulated-entity layer.

TONA Futures (Adjacent Listed Product)

OSE lists TONA 3-Month Futures, which complement the OTC OIS market by providing exchange-traded, JSCC-cleared exposure to short-tenor TONA expectations. Specifications:

Element	Detail
Underlying	3-month compounded TONA over the contract reference period.
Quotation	100.00 minus the futures rate; standard short-rate-futures convention.
Tick value	Defined per contract; small notional sizing for retail and small institutional.
Settlement	Cash-settled against the reference 3-month TONA compound at contract maturity.
Clearing	JSCC.

TONA futures are growing in liquidity but remain smaller than OTC OIS. They are useful for short-rate hedging where the user prefers exchange-listed structure over OTC.

Sources

Bank of Japan: Call Money Market Data (TONA / TONAR publication).
Bank of Japan: Money Market surface and statistical releases.
Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks: public reports on TONA adoption and IBOR transition.
Japan Securities Clearing Corporation: JPY IRS / OIS clearing rules and TONA futures clearing.
Japan Exchange Group / Osaka Exchange: TONA 3-Month Futures contract specifications.
Financial Services Agency: IBOR transition supervisory guidance.
ISDA: 2020 IBOR Fallbacks Protocol and Supplement.
Japanese Bankers Association TIBOR Administration (JBATA): TIBOR benchmark administration.
BIS: Semi-annual OTC derivatives statistics.