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The Structure of and Recent Developments in the Short-term Yen Money Markets: Arbitrage relationship between the uncollateralized call market, the Euroyen market and the dollar/yen swap market

July 23, 2001
Kei-ichiro Inaba
Sayako Konno
Noritaka Fukunaga
Tokiko Shimizu

The views expressed in the Review are those of the authors and do not necessarily represent the views of the Bank of Japan. Comments and questions as well as requests for hard copies should be addressed to Tokiko Shimizu, Manager, Financial Markets Department (

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Closer relationships are now being observed between the uncollateralized call rate, which is heavily influenced by the Bank of Japan's money market operations, and the Euroyen rate and the yen funding rate in the dollar/yen swap market, reflecting more dynamic arbitrage operations by internationally active financial institutions. Although interest rates in the three markets might diverge for a short period due to supply-demand imbalances and institutional changes, they would converge relatively quickly thereafter. This report explores possible factors which might influence the arbitrage relationships by examining how and why interest rates in the three markets diverged and converged from the end of 2000 to the beginning of 2001. Analyses suggest that it is necessary to comprehensively monitor influences of domestic and overseas factors in order to enhance our understanding of developments in short-term yen interest rates.