Yen traders brace for wildest day since financial crisis


The Bank of Japan’s policy decision due Wednesday is shaping up to be the biggest risk for the dollar-yen pair since the global financial crisis.

The currency pair’s overnight implied volatility jumped as high as 54.4 vol, the highest since November 2008, as traders positioned for another policy tweak following a surprise move in December. Traders have turned up the heat on BOJ by pushing the 10-year bond yield above the central bank’s ceiling for three straight days.

The impact of another shift in BOJ policy would be felt across the globe, with the move likely to spur a jump in the yen and trigger a rise in global bond yields. If the central bank stands pat, dollar-yen is expected to rally as investors positioned for a change will look to cover their short positions.

Dollar-yen’s overnight volatility level suggests there is a 70% probability the currency pair will trade in a 125.12-132.29 range on Wednesday, compared with around 129 on Tuesday.

© 2023 Bloomberg

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