Global foreign exchange (Forex) derivatives reached a record $130 trillion in notional value by mid-2024, surging 10% from the previous year, driven largely by unprecedented activity in yen-related contracts amid speculation about Japan's monetary policy shift.

Yen Trading Frenzy Drives Global FX Markets

According to the newest Bank of International Settlements (BIS) OTC derivatives statistics, Yen-denominated derivatives experienced a remarkable 26% growth when measured in local currency terms, reflecting intense market positioning ahead of potential changes to Japan's negative interest rate policy. In dollar terms, yen contracts rose 13% year-over-year, marking the strongest expansion among major currency pairs.

This also marks a significant jump compared to the results achieved for the entire year of 2023, when FX OTC derivatives reached $118 trillion.

Non-bank financial institutions emerged as the primary drivers of growth, significantly increasing their positions in FX swaps and forwards. The surge in activity reflects growing uncertainty about currency movements and heightened hedging demands from institutional investors.

Contracts involving "other currencies" maintained their upward trajectory, posting a steady 10% year-over-year growth. The US dollar, maintaining its role as the primary vehicle currency, saw corresponding increases in contract volumes.

Global OTC Derivatives Market Stalls

The robust growth in FX derivatives contrasts sharply with other segments of the OTC market, where interest rate derivatives remained relatively flat. The expansion in FX trading volumes suggests mounting concerns about currency volatility and growing demand for risk management tools.

The total notional value of outstanding OTC derivatives reached $726 trillion by mid-2024, marking a 2% increase from the previous year. The market demonstrated its typical seasonal pattern, contracting 6% in late 2023 before rebounding 9% in the first half of 2024.

Interest rate derivatives, which comprise the largest segment of the market, remained relatively flat, growing just 1% to $579 trillion. However, their gross market value continued to decline, falling 17% year-over-year as the pace of global monetary tightening slowed.

Commodity derivatives showed surprising strength, with oil-related contracts expanding 21% in the first half of 2024. Market participants attributed this growth to increased hedging activity following disruptions to Red Sea shipping routes.

The gross market value of outstanding derivatives, a key measure of market risk, decreased by 7% in the first half of 2024, continuing its downward trend from late 2022. Gross credit exposures also declined, suggesting an overall reduction in counterparty risk across the market.