Tokyo Overnight Average Rate (TONAR)

What is the Tokyo Overnight Average Rate (TONAR)?

The Tokyo Overnight Average Rate (TONAR) is Japan’s key risk-free reference rate (RFR). It measures the interest rate at which banks lend and borrow Japanese yen from one another on an overnight basis without requiring collateral.

TONAR reflects real borrowing costs in Japan’s short-term money markets. It also serves as the primary reference rate for yen-denominated financial instruments.

How is TONAR Calculated?

TONAR is calculated from data on unsecured overnight call transactions, a type of short-term loan between financial institutions. The calculation uses actual transaction data collected by the Bank of Japan, not quotes or estimates.

Here’s how it works in practice:

• Market participants engage in overnight unsecured lending in Japanese yen.
• The Bank of Japan gathers all the transaction data for that day.
• That day’s TONAR rate is published the next morning, reflecting the weighted average of those transactions.

This transaction-based methodology ensures that TONAR reflects real market activity, which strengthens its credibility as a benchmark rate.

Key Uses of TONAR in Finance

TONAR plays an important role in Japan’s financial system and global markets. Its main uses include:

• Benchmarking financial instruments: TONAR is used as a reference rate for floating-rate bonds, derivatives, and other yen-based products.
• Loan and bond pricing: Financial institutions use TONAR to set interest rates on various yen-denominated loans and securities.
• Risk management: Investors and corporations use TONAR-linked products to hedge interest rate exposure.

Because it’s a recognized risk-free rate, TONAR underpins a wide range of financial contracts, improving transparency and consistency across the Japanese financial market.

TONAR vs. Other Global Risk-Free Rates

TONAR is part of a broader family of global risk-free reference rates developed to replace LIBOR. While each region has its own benchmark, they share the same principle: basing rates on overnight transactions that carry minimal credit risk.

• TONAR (Japan): Based on unsecured overnight call transactions in yen.
• SOFR (U.S.): Based on secured overnight repo transactions.
• SONIA (U.K.): Based on overnight unsecured transactions in sterling.
• €STR (Europe): Based on euro-area wholesale unsecured overnight borrowing.

All of these benchmarks share the goal of capturing overnight borrowing costs in a transparent and reliable way. Where they differ is in how each reflects its local market structure. For example, SOFR is backed by collateral through the repo market, while TONAR, SONIA, and €STR measure unsecured lending activity.

Why Does TONAR Matter for Finance Professionals?

For finance professionals working with yen-denominated assets, TONAR is a critical benchmark. Its influence extends to:

• Market stability: As Japan’s risk-free rate, TONAR sets the foundation for interest rate products in the world’s third-largest economy.
• Cross-border finance: Analysts and investors outside Japan rely on TONAR to assess yen-related investments or manage global portfolios.
• Professional development: Knowing how benchmark rates like TONAR operate helps finance professionals strengthen their understanding of financial markets and risk management.

In short, TONAR isn’t just relevant in Japan. It’s part of the global conversation on interest rates and financial benchmarks.

Understanding TONAR

TONAR is Japan’s official risk-free reference rate, published daily by the Bank of Japan. It underpins yen-denominated loans, bonds, and derivatives, and it aligns with the global shift toward transparent, transaction-based benchmarks. For finance professionals, understanding TONAR provides valuable context for analyzing interest rate markets both in Japan and worldwide.

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Additional Resources

Euro Short-Term Rate (€STR): The EU’s Benchmark Interest Rate

Secured Overnight Financing Rate (SOFR)

LIBOR: Why the Benchmark Interest Rate Was Phased Out

See all Capital Markets resources

See all Fixed Income resources

FAQ: Tokyo Overnight Average Rate (TONAR)

What is the Japan Tokyo Overnight Average Rate used for?
TONAR is used as a benchmark for yen-denominated loans, bonds, and derivatives, and as Japan’s official replacement for LIBOR.

What’s the difference between TONAR, SOFR, and SONIA?
TONAR is based on unsecured overnight lending in Japan, SOFR reflects secured repo transactions in the U.S., and SONIA measures unsecured lending in the U.K.

Who publishes the Tokyo Overnight Average Rate?
The Bank of Japan calculates and publishes TONAR each business day using data from actual market transactions.