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Golden Week Holiday Begins After Yen's Post-BoJ Nosedive

JPY

The psychologically significant Y130.00 figure gave way on Thursday and USD/JPY implied volatilities soared across the curve after the BoJ gave a clear indication that working towards its inflation target remains a priority. The Bank stuck to its ultra-loose monetary policy settings and pledged daily purchases of unlimited amounts of debt to enforce its 0.25% cap on 10-year yield, shrugging off the yen's historic sell-off driven to a large extent by growing monetary policy divergence between Japan and its global peers.

  • Verbal warnings from Japanese Finance Ministry provided little if any reprieve to the yen Thursday, even as officials gave the clearest indication yet that an intervention was on the table. The authorities noted that they would respond "appropriately" to abrupt FX moves if needed, as recent price swings warrant "extreme concern".
  • Thursday's USD/JPY price action confirmed the formation of a bull flag pattern pointing to the resumption of the primary uptrend. With the rate last trading -5 pips at Y130.80, bulls look for a clearance of yesterday's high of Y131.25 before taking aim at the 1.00 proj of the Feb 24 - Mar 28 - 31 price swing at Y131.96. The key short-term support has been defined at Y126.95, the low print of Apr 27.
  • Note that USD/JPY implied volatilities keep climbing, with 1-month tenor within touching distance from 13%, a level last touched at the beginning of the Covid-19 pandemic. Overnight implied volatility understandably eased in the wake of the BoJ decision.
  • Japanese markets are shut in observance of the Showa Day as the Golden Week gets under way. While local financial markets will be open next Monday and Friday, expect a drop in activity during this festive period.
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The psychologically significant Y130.00 figure gave way on Thursday and USD/JPY implied volatilities soared across the curve after the BoJ gave a clear indication that working towards its inflation target remains a priority. The Bank stuck to its ultra-loose monetary policy settings and pledged daily purchases of unlimited amounts of debt to enforce its 0.25% cap on 10-year yield, shrugging off the yen's historic sell-off driven to a large extent by growing monetary policy divergence between Japan and its global peers.

  • Verbal warnings from Japanese Finance Ministry provided little if any reprieve to the yen Thursday, even as officials gave the clearest indication yet that an intervention was on the table. The authorities noted that they would respond "appropriately" to abrupt FX moves if needed, as recent price swings warrant "extreme concern".
  • Thursday's USD/JPY price action confirmed the formation of a bull flag pattern pointing to the resumption of the primary uptrend. With the rate last trading -5 pips at Y130.80, bulls look for a clearance of yesterday's high of Y131.25 before taking aim at the 1.00 proj of the Feb 24 - Mar 28 - 31 price swing at Y131.96. The key short-term support has been defined at Y126.95, the low print of Apr 27.
  • Note that USD/JPY implied volatilities keep climbing, with 1-month tenor within touching distance from 13%, a level last touched at the beginning of the Covid-19 pandemic. Overnight implied volatility understandably eased in the wake of the BoJ decision.
  • Japanese markets are shut in observance of the Showa Day as the Golden Week gets under way. While local financial markets will be open next Monday and Friday, expect a drop in activity during this festive period.