Yen bears will listen closely to Ueda messaging
Yen shorts appear nervous about Thursday's Bank of Japan policy meeting.
Futures open interest indicates that accounts, encouraged by dovish Bank of Japan messaging, have been building short yen positions since USD/JPY topped 150 on Oct. 17.
But options show a level of uneasiness as it traded near 154 ahead of Thursday's policy decision. Overnight yen volatility is 10.6%, its highest level since early October, and one-day risk reversals, while leaning bearish, show abnormally wide bid-ask pricing.
Though the Bank of Japan is expected to leave its policy rate steady at 0.25%, there is a concern that Governor Ueda may be more hawkish at the press conference given the recent slide in the yen and greater stability in overseas markets. At the bank's September policy meeting, Ueda suggested slowing the pace of tightening given market instability and uncertainty about the U.S. economic outlook. At the time, USD/JPY was trading around 143.
More recently during IMF-World Bank meetings last week, he offered more mixed messaging by saying that optimism over the U.S. outlook was broadening though markets remain unstable and Japanese inflation low.
Questions about stability and inflation may be partly answered once political leaders are selected in the U.S. and Japan and Japan wage data is collected in November. Until then, cautious policy messaging by Ueda should continue to encourage yen bears.
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(Robert Fullem is a Reuters market analyst. The views expressed are his own.)
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