USD/JPY holds steady near 150 as traders brace for BoJ meeting

The USD/JPY currency pair remained firmly entrenched within a narrow daily range around the 150 mark on Monday, as options traders pinned their hopes on prices settling near the key level by the end of the week. The pair’s high of 150.14 nearly touched the peak of October 2023 at 150.16, with anticipation building ahead of the Bank of Japan’s (BoJ) meeting and the release of the Fed’s favoured core Personal Consumption Expenditures (PCE) inflation report.

There is a huge $3.574 billion worth of 150 expiries scheduled for Friday. Speculation swirled around the possibility of the BoJ considering a raise in its 10-year Japanese Government Bonds (JGB) yield cap, currently set at 1.0%. Monday’s high of 0.869% inched closer to this critical threshold, intensifying market intrigue.

The USD/JPY’s one-week volatilities dipped to their lowest levels since February 2022, while one-month volatilities remained subdued at 8.3, not straying far from their early 2022 lows. Additionally, one-month risk/reversals favoured USD/JPY puts at -1.15, contrasting with September’s -0.75% highs, indicating a cautious market sentiment.

Concerns were raised by the decline in 2- and 10-year Treasury-JGB yield spreads compared to the peaks recorded last week. This decline suggested a lack of favourable conditions for a breakout above the 150.165 EBS highs, let alone a retest of the 32-year highs at 151.94 from 2022.

kMarket watchers speculated that if the BoJ refrains from making any policy changes on Friday, the focus would shift to the United States PCE data, posing a significant event risk for Treasury yields and the USD/JPY pair.

Key support for the USD/JPY pair was identified at the Kijun line, currently positioned at 148.73, closely aligning with the lows of the previous week at 148.75.