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FOREX: USD/JPY Makes Light Work of Bull Trigger on Dovish BoJ

FOREX
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  • Currency markets are in the midst of comfortably their busiest morning of the week, with G10 FX volumes surging well ahead of average for this time of day. Most notably, JPY futures are seeing volumes triple what you'd expect to see, thanks to the dovish outturn from the BoJ decision which allayed expectations for a rate hike in January, and saw the JPY spiral lower.
  • As a result, USD/JPY has cleared the bull trigger and the post-election high from mid-November, printing a new multi-month high and getting a significant dose of upside momentum in the process. This opens a broader range for the currency headed into 2025, evident in the skew toward the short-end of the JPY vol curve.
  • GBP trades well, gaining alongside a further widening in EUR-GBP rate differentials today (the SFR - ER Z5 spread is at new record levels), helping pressure EUR/GBP to a new pullback low, adding additional pressure to the single currency, that was already underperforming on the back of the hawkish interpretation of the Fed decision.
  • Focus for the session ahead remains on central banks, with the Bank of England seen keeping their policy rate unchanged. An 8-1 vote for no change is consensus, and the lack of a post-decision press conference could limit any subsequent market volatility. Weekly claims data are the highlight in the US, with existing home sales for November also on the docket.
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  • Currency markets are in the midst of comfortably their busiest morning of the week, with G10 FX volumes surging well ahead of average for this time of day. Most notably, JPY futures are seeing volumes triple what you'd expect to see, thanks to the dovish outturn from the BoJ decision which allayed expectations for a rate hike in January, and saw the JPY spiral lower.
  • As a result, USD/JPY has cleared the bull trigger and the post-election high from mid-November, printing a new multi-month high and getting a significant dose of upside momentum in the process. This opens a broader range for the currency headed into 2025, evident in the skew toward the short-end of the JPY vol curve.
  • GBP trades well, gaining alongside a further widening in EUR-GBP rate differentials today (the SFR - ER Z5 spread is at new record levels), helping pressure EUR/GBP to a new pullback low, adding additional pressure to the single currency, that was already underperforming on the back of the hawkish interpretation of the Fed decision.
  • Focus for the session ahead remains on central banks, with the Bank of England seen keeping their policy rate unchanged. An 8-1 vote for no change is consensus, and the lack of a post-decision press conference could limit any subsequent market volatility. Weekly claims data are the highlight in the US, with existing home sales for November also on the docket.