Sideways Drift Ahead Of BoJ Monetary Policy Decision

USD/JPY traded sideways Wednesday, finishing the day within touching distance from neutral levels. Both sides of the pair outperformed most of their G10 pairs (save for the kiwi), with the European FX bloc pressured by Italy's political turmoil and uncertainty surrounding gas supplies from Russia.

• Performance from equity markets was mixed after Asia hours, with European benchmarks losing ground & U.S. counterparts ticking higher. The VIX index slipped.
• U.S. Tsy yields unwound an earlier downswing and climbed in NY hours, leaving U.S./Japan 10-Year yield spread little changed on the day.
• USD/JPY 1-month risk reversal jumped Wednesday, plumbing a new one-month high. It remains below parity since mid-June.
• Spot USD/JPY trades at Y138.23, little changed on the day. A break above Jul 14 high of Y139.39 would bring the round figure of Y140.00 into view. Bears see Jul 14 low of Y137.28 as their initial target. A break here would open Jun 23 low of Y134.27.
• Yomiuri reported that PM Kishida will likely reshuffle his Cabinet in early September. Other media outlets pointed to a similar timeline, but the Prime Minister has not yet publicly committed to any specific date.
• The BoJ is expected to keep its monetary policy settings unchanged today, but it may tweak the economic forecasts in its quarterly Outlook Report. Click here to see our full preview.
• Japan's trade data will hit the wires shortly, with national CPI coming up Friday.