TONAR

The Tokyo Overnight Average Rate (TONAR) is the risk-free unsecured interbank overnight interest rate for the Japanese yen – it’s also known as TONA.

TONAR became the preferred Japanese yen risk-free reference rate during the transition away from LIBOR.

How is TONAR calculated?

TONAR is calculated as the volume-weighted average of all uncollateralised overnight transactions settled on the same day as the trade date and maturing on the following business day. The rate is calculated in a similar manner to other risk-free benchmarks, such as SONIA and SOFR, using historical transaction data.

The Bank of Japan announced that QUICK Corp would be responsible for calculating and publishing longer-term rates, with publication originally expected by mid-2021. However, adoption of TONAR was relatively slow due to debate over whether TONAR or the widely used TIBOR rate should become the primary alternative to LIBOR. Many Japanese lenders and borrowers (approximately 57%) favoured TIBOR because it was already widely used and its methodology was similar to that of LIBOR. TIBOR is based on banks' estimates of market interest rates rather than historical transactions. However, like LIBOR, TIBOR was subject to manipulation by several banks, including Citigroup and UBS, in 2011.