USD/JPY Implied volatility rises to the occasion ahead of BOJ

President Trump made it clear at Davos he is not here to encourage free markets, stating he wants lower interest rates for the US and globally, and lower oil prices from Saudi Arabia. Crude oil prices were lower for a fifth day, with WTI crude falling to just shy of $74 and the S&P 500 reach a record high of 6118.72.

With the BOJ interest rate decision on tap, it is no surprise to see the 1-day implied volatility band for USD/JPY rise to 250% of its 20-day SMA. This hints at a potential 115-pip move (up or down) and a closing range of ~230 pips. But we can also see that implied volatility for USD/JPY is trending higher across multiple timeframes which points to turbulent times ahead.

Economic events in focus (AEDT)

We have a busy calendar today, which kicks off the BOJ’s interest rate decision. While a 25bp hike is expected to take rates to 0.5%, the BOJ have a knack of surprising markets via shock and awe, or mere disappointment. Therefore, take nothing for granted. But should the BOJ deliver a hawkish 25bp hike, the yen should strengthen and weigh on USD/JPY. Whereas anything less than a 25bp hike (such as a 15bp or zero), the USD/JPY could rally – with the level of disappointment deciding just how far it could bounce.

We’ve likely seen the best of the WEF meetings of Davos with Trump’s video call on Thursday, but headline risks are to remain in place regardless as comments are made (officially or via ‘sources’).

We then move on to the first set of flash PMIs for 2025, which help shape expectations for growth, employment and inflation for the respective economies.

10:30 – JP CPI
11:01 – UK consumer sentiment
11:30 – JP flash manufacturing and services PMIs
13:00 – NZ credit card spending
14:00 – BOJ interest rate decision (+25bp expected, but times may vary)
17:30 – BOJ Press conference
19:00 – World Economic Forum Annual meeting
19:30 – DE flash manufacturing and services PMIs
20:00 – EU flash manufacturing and services PMIs
20:25 – UK flash manufacturing and services PMIs
01:45 – US flash manufacturing and services PMIs
02:00 – US consumer sentiment and inflation expectations (Michigan University)

USD/JPY technical analysis:

I outlined a scenario last week where USD/JPY could fall towards 153. While that remains a possibility, we need a hawkish BOJ today to make it happen sooner than later. But we have seen a clear momentum shift lower as part of a first corrective wave, and prices now appear to be in a bearish consolidation.

The 1-hour chart shows prices holding above a high-volume node (HVN) at 155.67, and given the increase of the cumulative volume delta this week, (more bids than offers) it suggests buying pressure for USD/JPY. So unless the BOJ deliver a hawkish hike, perhaps a bounce higher is on the cards today. At which point I will review with fresh eyes next week for its potential to top out and make its next leg lower towards 153.

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.