Steady Start, Implied Vols Remain Comfortably Off Recent Highs

USD/JPY is off to a steady start in Tuesday dealing. The pair was last near 149.15, having respected recent ranges in trading so far (an earlier dip to 149.00 was supported).

• All focus will be on the BoJ decision today. BBG notes the average time for the policy announcement is 11:55am local time (0255 GMT) going back to 2016 (see this link). Note that onshore bond markets close from 11:05am to 12:25pm for cash trading and 11:02am to 12:30pm for futures.
• There are lots of moving parts to the BoJ decision, around whether the NIRP is exited, YCC control and bond and ETF purchases.
• Even an exit may not elicit much of a yen gain, given recent BoJ rhetoric has emphasized that financial conditions will remain accommodative even after such an exit takes place. BoJ officials have also stated it is difficult to envisage the BoJ undertaking an aggressive tightening cycle.
• In the option space, implied vols for USD/JPY sit comfortably off recent highs, particularly for the 1 month (last near 7.61% (against recent highs of 9.43%). It's a similar backdrop in terms of risk reversals, in terms of moving away from recent extremes.
• For the current session, the implied probability (71%) in terms of the USD/JPY range is 147.54-150.72.