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Why MNI
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of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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Free AccessMNI China Daily Summary: Wednesday, December 11
Yen Has Tended To Strengthen In The Lead Up To Prior BoJ Meeting Outcomes
The main event risk this week from a domestic standpoint will be Friday's BoJ meeting outcome. Looking back over the past 5 BoJ meetings, the general tendency has been for USD/JPY to trend lower into the meeting outcomes. This may reflect market hedging around a possible BoJ surprise, particularly after the Dec 22 meeting outcome. Still, expectations heading into this meeting remain quite low in terms major policy shifts.
- The chart below plots USD/JPY performance in the 10 day prior to the meeting outcome, with USD/JPY levels indexed to 100 for the day prior to the meeting outcome.
- Two weeks prior to the meeting USD/JPY has been an average around 1% higher, 1 week prior, around 0.5% higher. Of course, outside factors can be also driving yen during this periods, not just market expectations/risks around the BoJ outlook.
- Last week's performance for yen, where we down slightly against the USD, which underperformed the historical norms modestly, at least going back over the past 5 meetings.
- Post the BoJ meeting outcome, we typically see USD/JPY move lower in the week after the announcement, although these results are skewed by the post Dec-2022 outcome (YCC change) and in March of this year, which was influenced by broader risk aversion post the SVB collapse.
- If we look at 1 month implied vols, they have trended higher in the lead up to the past two BoJ meetings (Jan & Mar), by around 1vol. We didn't see a discernible trend prior to meeting outcomes last year.
- For risk reversals, the skew has been to the downside, particularly in the lead up to recent policy meetings.
Fig 1: USD/JPY Performance Around The Past 5 BoJ Meetings
Source: MNI - Market News/Bloomberg
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