Japan Proposes Mid-2021 Cut-off on New LIBOR Loans, Bonds

Source: Regulation Asia Manesh Samtani, Regulation Asia 2020-08-11

Feedback is sought on fallbacks for cash products referencing JPY LIBOR. Under the plan, issuance of new LIBOR based loans and bonds will cease by mid-2021.

The BOJ (Bank of Japan) has issued a new consultation paper soliciting comments on fallbacks for cash products (loans and bonds) referencing JPY LIBOR.

The paper presents the progress made by the ‘Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks’, formed in August 2018 to facilitate interest rate benchmark reform in Japan ahead of LIBOR‘s permanent discontinuation at the end of 2021.

Building on a July 2019 consultation, the Committee proposes that a waterfall structure be adopted to determine the replacement benchmark for loans and bonds, prioritising term reference rates based on JPY overnight index swaps published by Quick Corp.

Part of the Nikkei Group, Quick Corp began publishing prototype rates on 26 May, and is expected to start publishing production rates by mid-2021.

The consultation proposes to use the ‘historical median approach over a five-year lookback period’ to calculate the spread adjustment, in line with fallbacks for ISDA derivatives and the approaches adopted by the US and UK national working groups.

The Committee is also seeking feedback on initiatives to to enhance the robustness of term reference rates by revitalising the JPY overnight index swaps market.

The consultation paper sets out a transition plan for case products referencing JPY LIBOR maturing beyond 2021, whereby issuance of new loans and bonds referencing LIBOR will cease by mid-2021.

The consultation paper, available here, is open for comment until 30 September 2020.

LIBOR

ISDA

BOJ

Benchmark Reform

Japan Proposes Mid-2021 Cut-off on New LIBOR Loans, Bonds

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