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Alternative Benchmarks for the New Normal

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30 March 2021
Eiichiro Yanagawa

Latest Trends in LIBOR Transitions in Japan

Abstract

Once referred to as the world’s most important number, the London Interbank Offered Rate (LIBOR) is the most important global benchmark for interest rates and is referenced in setting prices on derivatives, bonds, business loans, and consumer financial products. The LIBOR figure has played a crucial role in the financial ecosystem, with more than 240 trillion dollars in financial products referencing it.

A series of problems with LIBOR prompted world regulatory authorities to announce the phasing out of the reference rate, with industry players on the move to identify alternative rates and formulate new processes. Alternative benchmarks will by definition structurally differ from LIBOR. How this will affect existing products that reference LIBOR and new products that may appear remain unknown. Similarly, uncertainty is how the potentially significant impact on both customers and the macro-economy will play out.

While it may not amount to the goal, the transition afoot in 2021 is poised to see financial markets undergo a major change. Even in Japan, although it may feel far away, the future is quickly approaching, and financial institutions should already be pulling out all the stops to tackle the change successfully, considering the scale of the transition required and the impact on financial markets.

To understand the impact of the LIBOR transition and the financial implications for Japan and the Asia-Pacific region better, Celent continues to conduct online surveys and interviews targeting financial institutions and IT vendors. This report features an analysis of LIBOR transition readiness in Japan-based financial markets on the survey “Navigating the LIBOR Transition: Using IT to Adapt to the New Normal.” The survey was conducted in the fall of 2020 with the participation of more than 30 financial services and IT professionals in Japan/APAC.

This report leverages the survey results to shed light on the preparedness, challenges, and measures to address this upcoming change.

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