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Run Higher in Implied Vols Show's Market Concern of Acute JPY Volatility Post-BoJ

JPY
  • Difficult to overstate the run higher in JPY implied vols ahead of this week's BoJ decision. 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 contract hasn't traded this high since July 2016, in a session that captured a disappointing BoJ decision, a soft US GDP print as well as a warning from Japan's MoF on the strength of the JPY.
  • Soaring implied vol has significantly widened the implied breakeven for overnight ATM straddles, meaning markets would have to see an approx 275 pip move in either direction to cover the premium paid, a sure sign that markets are anticipating acute volatility in the wake of the decision.
  • On a tech basis, the path of least resistance remains down for USD/JPY, Moving average studies remain in bear mode, with the 50- and 200-dmas highlighting a potential bearish death cross. The focus is on 126.81, a Fibonacci projection.
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