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JPY: January BoJ Pricing Could Be the Market to Watch For Next 24hrs

JPY
BulletMarketsForeign Exchange Bullets

USD/JPY vols are suitably bid today, with the overnight contract capturing both the Fed decision later today, as well as the BoJ due during the Thursday Asia-Pac session.

  • It's clear that signalling at both the banks will be key for the market reaction: a 25bps FOMC cut, and a BoJ hold are close to fully priced - meaning it's the comms strategy for 2025 that could swing prices here, and that's likely what's showing in vol space.
  • USD/JPY vols are bid to 25 points, and EUR/JPY to 23 points, meeting levels akin to the lead-up to the September US jobs report, and prompting the break-even on an overnight straddle to widen to ~130 pips - close to double the YTD average for the same structure.
  • This raises the focus on layered resistance at the Y155 handle and the cycle highs above at 156.75 should the confluence of Fed/BoJ risks be beneficial for the pair. Such a move would work against the recent improvement in the JPY net position, which currently sits at a small net long after this year's sharp correction.
  • It's January BoJ pricing that could prove key here - a 25bps hike is ~50% priced, leaving notable two-way risk on a firm steer in either direction from Ueda's press conference - which could make this the market to watch in the coming 24 hours.
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USD/JPY vols are suitably bid today, with the overnight contract capturing both the Fed decision later today, as well as the BoJ due during the Thursday Asia-Pac session.

  • It's clear that signalling at both the banks will be key for the market reaction: a 25bps FOMC cut, and a BoJ hold are close to fully priced - meaning it's the comms strategy for 2025 that could swing prices here, and that's likely what's showing in vol space.
  • USD/JPY vols are bid to 25 points, and EUR/JPY to 23 points, meeting levels akin to the lead-up to the September US jobs report, and prompting the break-even on an overnight straddle to widen to ~130 pips - close to double the YTD average for the same structure.
  • This raises the focus on layered resistance at the Y155 handle and the cycle highs above at 156.75 should the confluence of Fed/BoJ risks be beneficial for the pair. Such a move would work against the recent improvement in the JPY net position, which currently sits at a small net long after this year's sharp correction.
  • It's January BoJ pricing that could prove key here - a 25bps hike is ~50% priced, leaving notable two-way risk on a firm steer in either direction from Ueda's press conference - which could make this the market to watch in the coming 24 hours.