USDJPY continues to hold around 100 – RBC CM

Adam Cole, Head of G10 FX Strategy at RBC Capital Markets, notes that the USD/JPY continues to hold around 100, with USD generally awaiting direction from Yellen’s speech on Friday and JPY strength still being constrained by elevated expectations of policy action from the BoJ at the September 21 meeting.

Key Quotes

“One-month USD/JPY implied vol, which covers the BoJ and Fed meetings in late September, trades at a huge premium (ATM around 14.8, about 3 vols higher than slightly shorter dates). The absence of a similar premium in the EUR/USD or GBP/USD curves implies that most of this relates to uncertainty on the BoJ, rather than the Fed. As was the case at the March and July meetings, we see a significant risk that what the BoJ delivers falls well short of inflated expectations.

MoF’s weekly capital flows data tonight should confirm the recent trend of strong demand for all overseas assets, bonds in particular. We do not think this outflow is JPY-bearish when taken together with the JPY buying flow likely to be generated by rising hedge ratios (public and private) on existing overseas investments.”