Japan weighs benchmark options as sun sets on Libor

Dominance of risk-free rates in local swaps markets post-Libor is no foregone conclusion, dealers say

Japan’s yen interest rate swap market is the third largest in the world after the US dollar and euro, with nearly $40 trillion of outstanding contracts, according to the latest Bank for International Settlements data.

Yet when the country’s prevailing Libor benchmark ceases, as expected, at the end of next year, there is no obvious single replacement rate.

Three possible alternatives are waiting in the wings: a backwards-looking compounded version of the regulator-approved risk-free rate, the

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