Japan's TFX launches overnight call rate futures

TOKYO, Dec 3 (Reuters) - The Tokyo Financial Exchange launched trade in futures based on the overnight call rate on Monday, offering investors more tools to hedge positions or make bets on future Bank of Japan policy changes.

The overnight call rate futures <0#JOV:> mark another step in the revival of Japan's money markets since the central bank ended its policy of pinning rates near zero last year.

The January 2008 futures contract JOVF8 on the overnight call rate showed an implied rate of 0.525 percent, showing a 10 percent chance that the BOJ could raise its target for the overnight call rate to 0.75 percent from 0.5 percent next month.

The other main way to hedge against potential BOJ policy changes is with overnight index swaps, which are unlisted contracts traded in the over-the-counter derivatives market.

The TFX also started trade in futures on overnight repurchase agreements <0#JSN:>, giving market players a new hedging tool in the repo market where banks and investors raise funds by lending securities such as government bonds as collateral.

The TFX offers euroyen futures and options <0#JEY:>, which are the most widely traded short-term interest rate contracts in Japan and are based on three-month Tokyo interbank lending rates.

The BOJ has taken steps to bolster activity in the short-term markets, including the launch of benchmark reference rates for repurchase agreements, to help foster more trading of short-term call money beyond the overnight rate.

Japan's fixed-income market only has a few major listed futures contracts that trade very actively compared with U.S. and European markets.

Besides euroyen futures, the chief contract for the government bond market is the 10-year JGB future 2JGBv1 on the Tokyo Stock Exchange. (Reporting by Chikako Mogi; Editing by Hugh Lawson)