USD/JPY Implied Volatility Remains Elevated

USD/JPY pushed higher post the Asia close, following US yields higher. We touched close to 135.60, but have tracked lower today, with the pair last at 134.95, down ~50 pips on the day. This is in line with lower Cash Tsys this morning, with the 2yr back sub 3.40% (-3bps on the day).

• From a technical standpoint, there is no firm support before the 20-EMA at Y131.74. Conversely, bulls look for a run towards Y136.04, the 1.382 Fibo projection of the Feb 24 - Mar 28 - 31 price swing.
• Short term USD/JPY volatility remains very elevated. The 1-week implied is at 17.63%, which is highs back to March 2020, as focus turns to key central bank meetings this wek.
• Tonight, we have the FOMC, with the consensus shifting towards a 75bps hike in recent days.
• We also have the BoJ on Friday, with no change expected in broad policy settings, but there will still be a lot of focus on the meeting.
• The BoJ is ramping up bond buying to keep the 10yr yield capped at 0.25%. The break lower in the 10yr bond future for September continues suggest where the market sees the risks lie though.
• Furthermore, USD/JPY 1-month risk reversal keeps sinking after dipping below par on on Monday. It printed a new three-week low this morning.
• The Nikkei also stated that the BoJ may be prepping the market for a shift in its stance, based off a recent Kuroda speech (see this link for more details).
• On the data front, core machine orders printed better than expected earlier, up 19.0% YoY, versus 5.3% forecast. The Tertiary Industry Index is due later. The market expects a 0.8% rise (versus 1.3% previously).