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TIBOR (Tokyo Interbank Offered Rate) is an equivalent of Euro LIBOR in Europe. It describe price of currency on interbank market. TIBOR has two types of rates:

  • European TIBOR - based on Japan offshore market rates
  • Japanese Yen TIBOR - based on unsecured call market rates

It is presented each day at 1pm Japan Standard Time by Japanese Bankers Association. TIBOR can be used as reference rate when banks lend money to companies or individuals.

European TIBOR

  • European TIBOR also called ICE LIBOR or just LIBOR (in the past BBA LIBOR) is an average rate that is being used by banks to charge each other when granting the short-term loan and denominated to yen. It is administrated by ICE Benchmark Administration (IBA) and publish rates in five currencies (one of them is Japanese yen) and in few maturities: overnight, 1 week, 1, 2, 3, 6, 12 months. It is published on a daily basis, around 11:45 AM.
  • In order to calculate the final LIBOR, so called "Panel banks" have to report their average interest rates to Reuters. The Panel banks are selected on a yearly basis by administrator - ICE Benchmark Administration (IBA) with the assistance of the Foreign Exchange and Money Markets Committee (FX&MMC). Each panel bank is being assessed and multiple different factors and indicators are taken into account, for example - reputation, volume or the knowledge.
  • They deliver each maturity, even though they do not offer some maturity in that particular day. Then Thomson Reuters excludes the top 25% and the bottom 25% and calculate the average values from the rest of available values.
  • Japanese yen LIBOR is being published since 1986 and currently is a base reference rate for multiple financial instruments, for example mortgage, loan, bonds, derivatives or saving account. According to global-rates.com, "LIBOR is viewed as the most important benchmark in the world for short-term interest rates".

Japanese Yen TIBOR

  • Japanese Yen TIBOR, also called the Euroyen TIBOR or JBA TIBOR, has been set by the Japanese Bankers Association (JBA). The rate is being published since 1995 and contributes to the Japan financial market.
  • On 1st of April 2014, Ippan Shadan Hojin, which is the JBA TIBOR administrator, established the JBATA. The main responsibilities of this new institution are to manage, maintain, calculate, and most of all to publish the current rates. The rates are being published by designated and authorized information providers only. Everyone who want to use the rate is asked to ensure that refers to the recognized rates.
  • It's worth to mention, that even though the administrator has been changed, the methodology of the calculations didn't change. According to the official source of information, the TIBOR rate is being calculated "as a prevailing market rate, based on quotes for 6 different maturities (1 week, 1month, 2month, 3month, 6month, 12 months) provided by reference banks as of 11:00 a.m. each business day". Important might be also that, not all rates are taken into account, the top and the bottom two rates are being threw out, so the methodology resemble the harmonic average. Prior to the publication, JBATA awaits, by 11:35 AM, the data from at least eight banks. JBATA also tries to constantly improve the credibility of TIBOR as a benchmark, so that they do the periodical review of he definition or the calculation methodology. In emergency situation, JBATA can publish the rates from the previous day, which are considered as the effectual. JBATA also reserve the right to suspend the data publishing in case of changes in the unsecured market in Japan or offshore ones.
  • From the technical perspective, some of the administration tasks are outsourced to SoftBank Corp.
  • JBA TIBOR is essential for the Japanese Ministry of Finance. This government agency uses the rate to provide the wilder analysis.

Examples of TIBOR

  • TIBOR-JAPAN is the benchmark rate for the Japanese yen and is published daily by the Japan Securities Dealers Association. This rate is used widely in the Japanese wholesale money markets.
  • TIBOR-EUROYEN is the Euroyen TIBOR rate published by the Tokyo Foreign Exchange Market Committee and is used in the euroyen lending and borrowing markets.
  • TIBOR-TIBM is the Tokyo International Banking Market TIBOR rate, which is used for short-term loans and deposits in the international banking market.
  • TIBOR-EURO is the Euro TIBOR rate published by the European Money Market Institute and is used in the euro lending and borrowing markets.

Advantages of TIBOR

TIBOR is an important benchmark rate in Japan's interbank money market. It offers several advantages, including:

  • Transparency: TIBOR is determined by the Japan Bankers Association (JBA), which provides daily reports on the average rate of lending in the Japanese market. This helps to ensure that all participants have access to the same rate and promotes transparency.
  • Liquidity: TIBOR is a widely used benchmark rate in the Japanese market, and therefore it is highly liquid. This makes it easier for investors to enter and exit positions quickly.
  • Accuracy: TIBOR is determined by a large number of market participants and is therefore considered to be a reliable and accurate rate.
  • Low cost: TIBOR is free, which makes it an attractive option for borrowers and lenders.

Limitations of TIBOR

TIBOR is a benchmark rate that provides an indication of the cost of borrowing funds in the Japanese interbank market. However, TIBOR has several limitations:

  • TIBOR is based on a survey of a small number of market participants, which can lead to a lack of reliable data and accuracy in the rate.
  • TIBOR is also sensitive to market conditions and can be volatile.
  • TIBOR rates are also limited to certain maturities and currencies, which means that it cannot be used as a reference for all types of transactions.
  • TIBOR does not factor in credit risk and does not reflect the cost of borrowing from a particular bank.
  • Finally, TIBOR does not take into account the costs of hedging or other risks associated with borrowing money.

Other approaches related to TIBOR

TIBOR is an important indicator of currency exchange rate on the interbank market in Japan. Aside from TIBOR, there are a few other approaches that are used to measure interbank market prices for currency exchange:

  • Overnight Call Rate (OCR) - This rate is the rate at which banks are able to borrow funds from each other overnight, on a secured basis.
  • Euroyen Tokyo Interbank Offered Rate (EUR/JPY TIBOR) - This rate is the rate at which Japanese banks are able to borrow funds from each other in Euroyen, on an unsecured basis.
  • Tokyo Foreign Exchange Market (TFX) - This is an electronic market which enables international banks to trade foreign currencies. It is the largest foreign exchange market in Japan.
  • Bank of Tokyo-Mitsubishi UFJ (BTMU) - This is a bank that offers currency exchange services and is a major participant in the foreign exchange market in Japan.

In summary, TIBOR is one of several approaches used to measure currency exchange rate on the interbank market in Japan. Other approaches include Overnight Call Rate, Euroyen Tokyo Interbank Offered Rate, Tokyo Foreign Exchange Market and Bank of Tokyo-Mitsubishi UFJ.

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Author: Magdalena Rewers