TOKYO, Oct 8 : The Tokyo Financial Exchange will launch a new futures contract to help traders hedge increased volatility as a more active Bank of Japan reshapes the nation's rate markets.The exchange will introduce futures tied to the BOJ's overnight call rate this month to allow traders to position for rate moves between central bank policy meetings. Its existing three-month TONA futures contract has not matched demand from traders seeking to hedge changing expectations for interest rates driven by BOJ decisions at each meeting, the exchange said.The central bank last month raised its key policy rate for the second time this year to a 31-year high of 1.25 per cent, and is widely expected to hike again by December. That is much more rapid than its previous pace of around six-month gaps between increases.Show MoreShow Less“Interest rate moves have become more active lately, and there is an increase in demand for derivatives trading,” said Ryosuke Seo, a director in the wholesale business department at the Tokyo Financial Exchange.Trading in the three-month TONA futures has declined in recent months even as markets expect the BOJ to keep raising rates. September volume fell nearly 50 per cent from a year earlier, the exchange said.Three-month TONA futures were launched in 2023, a year before the BOJ ended its policy of negative interest rates, at Tokyo Financial Exchange and at Osaka Exchange, a unit of Japan Exchange Group. The exchanges compete with the much larger over-the-counter market for interest rate swaps, which can be tailored to users’ needs, including maturities.That OTC market for overnight index swaps, or OIS, has been growing, with the notional value of yen contracts of up to and beyond 30 years rising to a record high last month, according to Japan Securities Clearing Corp.Swap rates covering the period between BOJ meetings are widely used to gauge the likelihood of a rate increase.