PY: Anticipation Grows Ahead of Bank of Japan Meeting
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PY: Prepping for the BoJ
A lot of interest is building in tomorrow's Bank of Japan meeting. Please see our full preview here. Most expect no change in the BoJ's Yield Curve Control policy, largely on the view that the new BoJ Governor, Kazuo Ueda, would not want to undermine a clear communication policy by springing a surprise.
The FX market is a little nervous, however. The one-week risk reversal – the price for a USD/JPY put option over an equivalent USD/JPY call – has traded out to an extreme 4.1% in favour of USD/JPY puts. This is the most extreme skew to USD/JPY puts since March 2020. We will know a lot more by this time tomorrow, but as our colleague Min Joo Kang notes in her preview, the chances of a YCC adjustment are not negligible and investors risk being too complacent here. For reference, USD/JPY fell seven big figures (albeit in thin conditions) when the BoJ surprised by widening their JGB yield target band last December.
