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JPY Weakness Pervades, Implied Vols Ratchet Higher Pre-BoJ

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  • JPY weakness is once again the market focus, as USD/JPY's incline continues apace to print a new cycle high of 155.74 in early European / late Asia-Pac trade. Markets continue to test the resolve of the Japanese authorities, as several 'lines in the sand' at Y150.00 and Y155.00 go by with little sign of intervention. The BoJ are expected to discuss the weakening currency at their policy meeting - on which MNI understands that the USD/JPY at current levels is insufficient to prompt any immediate rate hike from the BoJ.
  • Overnight JPY options vols are pricing a sizeable swing across the BoJ decision on Friday, with markets pricing options at their most sensitive level of the year so far. We wrote last week that the next phase higher for USD/JPY could be harder to come by, with extremely short positioning and an overbought technical condition making gains more difficult from here – however a placid attitude from the BoJ toward the currency could unlock fresh USD/JPY longs.
  • GBP trades more favourably, with AUD and NZD also firmer. While equity futures have rolled off the weekly highs, the strength posted off the April lows continues to underpin risk appetite, despite still high US yields and tighter Fed policy pricing.
  • Focus for the duration of the session turns to Q1 advanced US GDP data and the latest core PCE price index release. March trade balance, pending home sales and the latest weekly jobless claims are also set to cross. Central bank appearances include ECB's Lagarde, Nagel (on climate change) and Panetta.
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  • JPY weakness is once again the market focus, as USD/JPY's incline continues apace to print a new cycle high of 155.74 in early European / late Asia-Pac trade. Markets continue to test the resolve of the Japanese authorities, as several 'lines in the sand' at Y150.00 and Y155.00 go by with little sign of intervention. The BoJ are expected to discuss the weakening currency at their policy meeting - on which MNI understands that the USD/JPY at current levels is insufficient to prompt any immediate rate hike from the BoJ.
  • Overnight JPY options vols are pricing a sizeable swing across the BoJ decision on Friday, with markets pricing options at their most sensitive level of the year so far. We wrote last week that the next phase higher for USD/JPY could be harder to come by, with extremely short positioning and an overbought technical condition making gains more difficult from here – however a placid attitude from the BoJ toward the currency could unlock fresh USD/JPY longs.
  • GBP trades more favourably, with AUD and NZD also firmer. While equity futures have rolled off the weekly highs, the strength posted off the April lows continues to underpin risk appetite, despite still high US yields and tighter Fed policy pricing.
  • Focus for the duration of the session turns to Q1 advanced US GDP data and the latest core PCE price index release. March trade balance, pending home sales and the latest weekly jobless claims are also set to cross. Central bank appearances include ECB's Lagarde, Nagel (on climate change) and Panetta.