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USD/JPY Dip Supported, 1 Week Risk Reversal To Fresh Lows Ahead Of BoJ

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USD/JPY saw quite the round trip post the Asia close. From highs above 137.90 we pulled back to the 136.50 region by late in the NY session. We recovered from here though, last tracking near 137.40. This left the yen slightly weaker for Wednesday's session. The simple 200-day MA (137.44) is nearby current levels.

  • USD/JPY followed the broad gyrations of US yields, which pulled back through the US session. Fed Chair Powell stressed the central bank wasn't on a preset path in terms of rates and sounded less hawkish compared to Tuesday's testimony (albeit at the margins). Still, US yields moved higher into the close, the 2yr back to 5.07%, the 10yr around 3.99%.
  • The US-JP 10yr swap spread is little changed over the last few sessions around the +285bps region.
  • 1 week implied vol continued to nudge higher, now at 18.39%. The 1 week risk reversal reversed yesterday's modest uptick and now sits near -4.00, see the chart below. This is fresh lows back to mid last year on an intra-day basis.
  • It's possible this reflects some hedging ahead of tomorrow's BoJ meeting. See our full preview here. No major changes are expected.
  • On the data front today we have a busy slate, with Feb money stock figures due, Q4 GDP revisions and weekly foreign investment flow data.

Fig 1: USD/JPY 1 Week Risk Reversal To Fresh Lows

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USD/JPY saw quite the round trip post the Asia close. From highs above 137.90 we pulled back to the 136.50 region by late in the NY session. We recovered from here though, last tracking near 137.40. This left the yen slightly weaker for Wednesday's session. The simple 200-day MA (137.44) is nearby current levels.

  • USD/JPY followed the broad gyrations of US yields, which pulled back through the US session. Fed Chair Powell stressed the central bank wasn't on a preset path in terms of rates and sounded less hawkish compared to Tuesday's testimony (albeit at the margins). Still, US yields moved higher into the close, the 2yr back to 5.07%, the 10yr around 3.99%.
  • The US-JP 10yr swap spread is little changed over the last few sessions around the +285bps region.
  • 1 week implied vol continued to nudge higher, now at 18.39%. The 1 week risk reversal reversed yesterday's modest uptick and now sits near -4.00, see the chart below. This is fresh lows back to mid last year on an intra-day basis.
  • It's possible this reflects some hedging ahead of tomorrow's BoJ meeting. See our full preview here. No major changes are expected.
  • On the data front today we have a busy slate, with Feb money stock figures due, Q4 GDP revisions and weekly foreign investment flow data.

Fig 1: USD/JPY 1 Week Risk Reversal To Fresh Lows

Keep reading...Show less