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JPY Implied Vols Surge Pre-BoJ

FOREX
  • Markets have run JPY implied vols considerably higher Tuesday as traders pre-position for the BoJ meeting early Wednesday in Asia-Pac hours. Overnight vols began to capture the BoJ decision today, and have rallied from ~18 points yesterday to north of 50 vol points this morning - the highest level since July 2016.
  • The market gyrations mean markets would have to see an approx 275 pip move in either direction to cover the premium paid on an ATM straddle, a sure sign that markets are anticipating acute volatility in the wake of the decision.
  • JPY trade slightly lower through the NY crossover, putting USD/JPY just north of the Y129.00 level, but still well within range of the recent lows at 127.23. CHF trades firmest across G10, while USD makes furtive gains amid lower equity markets. Earnings season resumes today, with Goldman Sachs and Morgan Stanley the highlights Tuesday.
  • Canadian CPI is the data highlight Tuesday, with markets expecting inflation to slow to 6.4% on a Y/Y basis. Focus should also be paid to the speaker slate, as Fed's Williams appears at an event at the New York Fed, although it remains to be seen whether he'll comment on the economy.
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