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What is the Tokyo Overnight Average Rate (TONA)?

Tokyo Overnight Average Rate (TONA) is a key interest rate in Japan that serves as a benchmark for short-term interest rates. It is calculated and published by the Bank of Japan (BOJ) on a daily basis. TONA plays a crucial role in the Japanese financial markets, influencing various aspects of the economy, including lending rates, bond yields, and monetary policy decisions.

Calculation of TONA

The Bank of Japan calculates TONA based on the weighted average of the lending rates reported by a panel of major banks in Tokyo. These rates are determined through actual transactions conducted in the interbank market. The BOJ publishes the TONA rate every business day, providing transparency and facilitating market operations.


In the past, the London Interbank Offered Rate (LIBOR) was widely used as a benchmark interest rate. However, due to concerns about its integrity and the declining number of transactions that underpin its calculation, regulators decided to transition away from LIBOR.

TONA is described as a near risk-free, rate as unlike LIBOR it does not contain material term risk or bank credit risk.

TONA is an overnight rate which is published in arrears. In contrast LIBOR is a term rate which is published at the start of the relevant interest period. This means that for products referencing TONA, unless adjustments are made to the methodology, the actual amount of interest payable is not known until the end of the agreed interest period.


TONA is a vital indicator of short-term interest rates in Japan. It serves as a reference rate for a wide range of financial instruments and contracts, including loans, bonds, derivatives, and other financial products. TONA influences borrowing costs, investment decisions, and monetary policy formulation.

Relationship with Monetary Policy

The Bank of Japan uses TONA as a guide to implement and adjust its monetary policy. By influencing short-term interest rates, the central bank can stimulate or tighten liquidity in the financial system. Changes in TONA can signal the BOJ’s stance on monetary policy, impacting economic activity and inflation.

Impact on Financial Markets

Changes in TONA have a significant impact on the overall financial markets in Japan. When TONA increases, borrowing costs rise, making it more expensive for businesses and individuals to obtain credit. This can dampen economic activity and affect investment decisions. Conversely, a decrease in TONA can stimulate borrowing and spur economic growth.

TONA and Borrowing Costs

TONA directly affects borrowing costs for various entities, including corporations, households, and the government. Higher TONA rates translate into increased interest expenses for borrowers, potentially limiting their ability to invest, expand, or make large purchases. Conversely, lower TONA rates can lower borrowing costs, stimulating economic activity.

TONA and Investments

TONA influences investment decisions by affecting the cost of capital and the expected returns on investments. When TONA is high, investors may demand higher returns to compensate for the increased cost of borrowing. Conversely, lower TONA rates can encourage investments by reducing the hurdle rate for potential projects.

TONA and Currency Exchange Rates

TONA plays a role in determining currency exchange rates. When TONA rises relative to interest rates in other countries, the Japanese yen may appreciate, making Japanese exports relatively more expensive. Conversely, a decrease in TONA can put downward pressure on the yen, potentially boosting exports and supporting economic growth.

TONA and Central Bank Operations

The Bank of Japan utilizes TONA in its daily market operations to manage short-term liquidity in the financial system. By setting the target level for TONA, the BOJ can influence the money market and ensure stability. These operations include open market operations, repurchase agreements, and the provision of short-term funds to banks.

TONA in the Global Context

TONA is comparable to other overnight reference rates used in major economies, such as the Federal Funds Rate in the United States or the Euro short-term rate (ESTR) in the Eurozone. These rates provide benchmarks for short-term borrowing costs and contribute to the stability of the global financial system.

Future Outlook for TONA

The Bank of Japan continues to monitor and assess the relevance and effectiveness of TONA as a benchmark rate. It aims to ensure the rate remains robust, transparent, and reflective of market conditions. As the financial landscape evolves, adjustments to the calculation methodology or the consideration of alternative rates may be explored.


Tokyo Overnight Average Rate (TONA) is a key interest rate in Japan that influences borrowing costs, investment decisions, and monetary policy. It serves as a benchmark for short-term interest rates and plays a significant role in the Japanese financial markets. TONA’s calculation and publication by the Bank of Japan ensure transparency and market stability.

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