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Vol Correction, If Sustained, Would Support Further JPY Strength

JPY
  • We have written in recent weeks that low levels of implied vol have cleared the way for further JPY weakness, as the subdued backdrop allows for the dominant carry trade theme to dictate spot fluctuations. Takata’s comments overnight not only being reflected in spot, but implied vols are bid across the JPY curve also.
  • 6m implied vols are bid today, posting the biggest one-day uptick of the year so far, and largest since December. Any mean-reversion higher for vols should prove supportive of any USD/JPY correction lower, although we still see the trend outlook remaining bullish and today's sell-off - for now - appears to be a correction.
  • Markets now price a near 20% chance that EUR/JPY will have cleared 164.30 - the cycle high from November last year - after the March decision - an implied pricing that's more than tripled since the beginning of the year - and grows to near 1/4 when capturing the April meeting.
  • This shifts focus to the first of several tallies for Rengo pay deals due in mid-March - which should provide the latest firm indication for wages ahead. Consensus looks for pay growth of near 4% this year - the highest since 1992.
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
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MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
Homepagemarkets-real-timeBulletMarketsForeign Exchange Bullets

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