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The purpose of this paper is to empirically examine the effects of derivative usage on the risk level of Japanese banks by using the most recent data available covering years 2010 and 2011. We find that the relationships between bank total risk and derivative usage are slightly negative, but without statistical significance. The usage of derivatives with hedging purpose, however, reduces bank total risk. The results indicate that the use of derivative as a whole has no impact on bank risk, but the use of under hedging accounting reduces the level of bank risk. We find that the usage of interest rate swaps with hedging purpose reduces bank total risk. We also find that the demand for interest rate swaps is generally higher by banks with a higher ratio of the long term Japanese government bonds (JGBs). The results indicate that by using interest rate derivatives, Japanese banks are reducing their risks related to holding tail end of longer term JGBs