BoJ Speculation Drives Yen Volatility, But Higher US Yields Drive Break Above 148.00

USD/JPY volatility was a key feature of the US Thursday session on the back of a JiJi article (see this link), which highlighted the BOJ is arranging to end negative interest rate policy at march meeting. While hardly new news that a rate hike will be considered, this appeared to point to the March meeting a little more directly and JPY strength ensued. The pair quickly fell from 147.95 to fresh session lows of 147.44, however, this weakness was extremely short-lived.

• The pair then steadily climbed, eventually taking out the day’s highs as the higher core yields weighed on the JPY and short-term positioning was squeezed, resulting in USD/JPY hugging session highs around 148.30, which is where we track in early Friday trade.
• The rise in US yields post generally firmer than expected data aided the rebound in the pair (PPI and initial jobless claims beat estimates, although retail sales were softer). US-JP yield differentials are trending higher once again, last near +351bps for the 10yr spread. We should see further catch up from Japan yields today, with the 10yr JGB yield not too far from multi month highs above 0.80%.
• Today's focus will rest on the Rengo wage announcement, expected around 2pm Japan time (0500 GMT). Prior we get the Jan tertiary industry index, which shouldn't be a market mover.
• In the option expiry space, note the following for NY cut later today: Y146.80-00($3.0bln), Y148.20-25($560mln), Y149.00($1.1bln).