Japan’s yen swaps go global

With US investors now able to trade and clear JPY interest rate swaps (IRS) at Japan Securities Clearing Corporation (JSCC), cross-border access, clearing competition and yen-rate volatility are converging to reshape one of the world’s most important rates markets

A quiet Liberation Day for US investors on market access

As Tokyo was rubbing the sleep from its eyes on September 12, 2025 and New York traders were finally shutting down their terminals, a small but significant change slipped into place. US investors, long shut out of Japan’s deepest yen derivatives pool, suddenly had a way in. With the Commodity Futures Trading Commission’s (CFTC’s) approval, they could now trade JPY IRS in the deepest liquidity pool and clear them at JSCC, the primary clearing house for the yen cash and derivatives market. It’s the sort of bureaucratic decision that usually passes unnoticed, yet it has quietly redrawn the map of global flows into Japan’s rates market.

Most importantly, it was the US market participants who long advocated to the country’s regulator for access to Japan’s yen derivatives markets, which are becoming increasingly volatile under the Bank of Japan’s (BoJ’s) changing interest rate policy, higher inflation and the cheapening of yen against the US dollar.

“The no-action relief finally puts US customers on equal footing with non-US market participants after years of a non-level playing field,” says Daniel Austin, head of US markets policy and regulation at the Alternative Investment Management Association. “Our US members can now access the largest pool of yen-denominated swaps liquidity, which comes at a critical time when they need to hedge JPY interest rate risk. Previously, US customers had little choice but to use uncleared swaps to trade at JSCC prices, contrary to Group of 20 commitments to expand central clearing. The relief fixes that problem and strengthens our members’ ability to manage risk safely.”

For JSCC, it’s long-overdue recognition: the clearing house has spent years telling the CFTC that its infrastructure, which has been legally recognised in the European Union, the UK, Switzerland, Canada, Australia and Hong Kong, is as robust as any Western peer. Now it can finally prove it. Millennium and Citadel joined JSCC through their US investment funds in December, adding new depth – and new scrutiny – to what is already the busiest venue for yen swaps.

Commenting on the significance of this development, Citi’s Shun Yanagisawa, Japan head of futures, clearing and FX prime brokerage, says: “Citi has long been a proponent of open and accessible markets, and we are delighted to support this expansion of client choice in clearing for our US investors. This development is particularly timely, given the renewed activity in the yen markets following recent policy shifts. We have worked closely with our global clients for many years to prepare for this moment. Providing seamless access to Japan’s markets is a key global priority for Citi, backed by the full support of our teams worldwide. Our mission is to provide a holistic and agnostic market access platform for global investors. Access to JSCC is a key part of this, and we will continue our focus on optimising across the entire yen rates ecosystem – including futures, swaps, cash and repo – to deliver a seamless and efficient experience for our clients.”

Japan’s dominant clearing house quietly pulls ahead

Liquidity is the metric that really matters to IRS traders and, by that measure, JSCC isn’t just competitive, it’s dominant. Data from Clarus Financial Technology shows DV01 of USD1,481 million monthly in 2025 at JSCC, which is absorbing much higher market risk from swaps counterparties than its nearest rival at USD924 million. That advantage is structural: the clearing house sits at the centre of a uniquely Japanese ecosystem, balancing flows from end-users such as life insurers, regional banks and trust banks, as well as worldwide dealers and their customers whose names are all publicly available on the JSCC website. Notably, in tenors beyond 10 years, JSCC captured an impressive 86% market share of DV01 in 2025, underscoring its leadership in the long end of the curve by its end-user liquidity.

For investors, that means something simple: it’s the venue at which you can get things done. Enter, exit, hedge, repeat – whether you are a global macro hedge fund or Japanese life insurance company, as this is where international and local yen liquidity flows are congregating.

This deepest market is supported by clearing brokers worldwide. Reflecting on this milestone, Mariam Rafi, global head of derivatives clearing products at Citi, comments: “We are proud to clear the first US client trade on JSCC. Our clients have been eager to access onshore yen liquidity, and this first trade follows years of advocacy. We are committed to providing differentiated access across global venues, so our clients can fulfil their business objectives.”

And the machine is running hotter than ever. October 2025 saw JSCC clear a record JPY1,526 trillion in swaps – the highest volume in its 13-year history. Investors hunting for returns increasingly look to Japan, and this new US access opens the door even wider.

The appointment of the Takaichi administration in October injected further momentum. Expectations for expansionary fiscal policy drove a marked rise in long and super-long Japanese government bond (JGB) yields, which had already been impacted by a reduction of JGBs held by life insurers as a result of new solvency regulations. The resulting steepening of the yield curve and elevated volatility became defining features of the yen rates market, amplifying the impact of these record flows.

The significance of this development is also highlighted by Tetsuo Otashiro, director, global policy and regulation for the over-the-counter (OTC) derivative clearing service at JSCC. He commented: “It is a clear win for US investors. This move unlocks access to deeper liquidity, and multiple clearing and trading venues for yen derivatives, aligning their options with what non-US participants have long enjoyed, which is even more important as the future policy rate by the BoJ is uncertain, and we are seeing increased volatility of longer tenors. Crucially, it comes with full disclosure on bankruptcy protections at JSCC for US investors, as stipulated by one of the conditions in the no-action letter.”

In summary, the opening of Japan’s deepest rates market to US investors is set to reshape global capital flows and further establish JSCC’s leadership in yen derivatives.

Infrastructure: more competitive yen markets with STP trade flow

If markets only move as fast as their plumbing, Japan has been upgrading the pipes.

US dollar cash collateral – accepted since January 2025 through a State Street partnership – provides institutions worldwide with a flexibility they’ve long demanded, in addition to US Treasury collateral. In an era when funding costs dictate strategy, being able to meet margin calls in US dollar-denominated assets is no small concession.

Then came March 2025, when JSCC completed the implementation of straight-through processing (STP) with Tradeweb’s swap execution facility and multilateral trading facility platforms. The change hardly inspires headlines, but the effect is unmistakable: less friction, fewer operational errors, a smoother link between where trades happen and where they get cleaned up.

Reflecting on these developments, Taichi Shibuya, managing director and head of Japan, Tradeweb, notes: “The yen IRS market has grown significantly in both volume and global participation. The continued shift towards electronification has brought greater efficiency, transparency and accessibility. Sustaining that momentum depends on strong post-trade infrastructure – clearing, STP and connectivity – which is essential to supporting a modern, resilient JPY IRS market.”

Next on the docket? Tri-party collateral services, which would pull Japan closer to global norms and reduce another pain point for cross-border investors.

To promote capital efficiency, JSCC and Osaka Exchange (OSE) – both part of JPX Group – enable cross-margining, allowing traders to offset exposures between OTC swaps and listed futures. As in US Treasury markets, participants can combine JGBs, futures and swaps for spread trades, use three-month Tokyo overnight average rate (TONA) futures for convexity strategies, and deploy 10- and 20-year contracts for curve positioning – significantly expanding Japan’s rates playbook.

The JGB market wakes up after a long hibernation

Japan’s return to a world with interest rates has shaken the placid JGB futures market out of its decade-long torpor. Headline volumes haven’t changed much, but the cast of characters certainly has. The proprietary desks that once dominated the market have been pushed aside by rules and risk limits. In their place, foreign investors – hedge funds, real-money players and especially high-frequency traders – now account for more than 70% of volume. OSE moved quickly, boosting system speeds and extending night trading hours – and the impact is visible.

Now, two years of a gradual upward trend on 10-year JGB futures trading volume throughout 2023 and 2024 and an increase in volatility suggest something else: competition is finally returning. Sensing an opportunity, domestic institutions are rebuilding the talent they once ceded. Options markets, on swaps and cash JGBs, are also reviving. OSE’s options on 10-year JGB futures saw volumes pick up again, backed by an overhaul of the market-maker system in June 2025, and rising trading demand from domestic and offshore institutions ahead of the BoJ’s next rate-hike movement.

Central clearing of JGB repo and outright trades is also where JSCC has maintained a dominant position, clearing JPY240 trillion (USD1.6 trillion) daily. The clearing house is now venturing towards customer clearing in the market, targeting non-Japanese customers such as hedge funds, by the first quarter of 2027, following the developments in US Treasury clearing.

A surprise star: 20-year futures return from the wilderness

Then there’s the comeback story no-one expected. The 20-year JGB futures, long overlooked, finally found a reason to exist. Supply-demand imbalances in JGB issuance and the US tariffs that rattled markets in spring 2025 sent Japan’s ultra-long yields sharply higher, exposing the lower correlation between swaps and cash JGBs and leading to hedging difficulties for local financial institutions.

Liquidity arrived quickly once major local players pushed to rebuild the market. On-screen liquidity was recovered in early July. Hedge fund players followed, and then domestic real-money players joined by September.

The steady rise of Japan’s listed short-term interest rate futures: 3-month TONA futures

OSE’s 3-month TONA futures – Japan’s answer to the secured overnight financing rate, or SOFR – hit 255,777 contracts of trading volume in October 2025, their second-best month since launching in 2023. Following the surge in offshore participation, domestic demand has also gathered pace since Q3 2025, with local positions now accounting for around 15% of total open interest.

Japan’s market infrastructure grows up

Pull the lens back and a pattern emerges. Japan’s clearing house and exchanges are quietly and steadily evolving – investing in collateral flexibility, digital plumbing and capital-efficient frameworks that bring them closer to their international competitors.

The narrative of 2025 in Japan’s interest rate markets isn’t one of sudden drama. It’s one of cumulative upgrades – Tokyo precision meets Wall Street ambition. With US investors now cleared to step inside JSCC’s walls, the yen rates complex feels less like a regional ecosystem and more like a fully fledged global marketplace.

JSCC isn’t just clearing swaps, it is clearing the way for the next stage of Japan’s financial evolution.

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