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JPY: USD/JPY 1 Week Vols Elevated But Sub 2024 Extremes Ahead Of Fed/BoJ

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USD/JPY 1 week implied vols sit in the upper half of the 2024 range, last just above 16%, see the chart below. This implies a range for USD/JPY out to the 24th of September of 137.43 to 143.55, albeit with a 71.4% probability (per BBG). The early August risk off period marked the highs for 1 week implied vol. 

  • The 1 week risk reversal is painting a similar backdrop, skewed lower, but comfortably above earlier 2024 trough points. We were last at -1.88.
  • This comes ahead of both the FOMC decision (due very early Thursday morning Asia Pac time) and the BoJ decision on Friday. Arguably the Fed outcome (25 v 50bps) coupled with the outlook, ahs the great chance to shake up FX markets, with the BoJ seen on hold on Friday.
  • USD/JPY has also maintained a tight correlation with US-JP 2yr yield differentials over recent months. The 2yr Tsy yield is more likely to be influence by the Fed outcome/outlook compared to the back end of the curve. 

Fig 1: USD/JPY 1 week Implied Vol & Risk Reversal 

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USD/JPY 1 week implied vols sit in the upper half of the 2024 range, last just above 16%, see the chart below. This implies a range for USD/JPY out to the 24th of September of 137.43 to 143.55, albeit with a 71.4% probability (per BBG). The early August risk off period marked the highs for 1 week implied vol. 

  • The 1 week risk reversal is painting a similar backdrop, skewed lower, but comfortably above earlier 2024 trough points. We were last at -1.88.
  • This comes ahead of both the FOMC decision (due very early Thursday morning Asia Pac time) and the BoJ decision on Friday. Arguably the Fed outcome (25 v 50bps) coupled with the outlook, ahs the great chance to shake up FX markets, with the BoJ seen on hold on Friday.
  • USD/JPY has also maintained a tight correlation with US-JP 2yr yield differentials over recent months. The 2yr Tsy yield is more likely to be influence by the Fed outcome/outlook compared to the back end of the curve. 

Fig 1: USD/JPY 1 week Implied Vol & Risk Reversal