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Overnight Option Vols: BoJ Meeting Redux

JPY
  • Overnight USDJPY vols have surged sharply as the contract begins to capture the Friday BoJ; the contract has added close to 30 points to hit the highest level since the March and January BoJ meetings, both of which were preceded by fraught speculation of a YCC tweak, contrasting with very little sell-side expectations of such a move.
  • Despite scant expectation of a policy change, markets remain highly volatile around the decisions: January's unchanged decision saw a ~300 pip intraday rally in spot - inline with break-even options pricing, while March’s more muted reaction still saw a rally of over 100 pips.
  • This mirrors the lead-up to Friday’s BoJ, ahead of which overnight straddles are pricing a swing of ~225 pips – the widest break-even for the pair since March.
  • Our BoJ preview sees only a small minority of the sell-side looking for a YCC change this week ( https://roar-assets-auto.rbl.ms/files/54914/BOJ%20... ), while MNI Policy understands that the meeting is likely to see a discussion on YCC, but no consensus for such a move.
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