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USDJPY Implied Volatility Suggests Traders Ready for Fireworks

The Yen has been on a tear of late, and there are a few reasons for this. Its latest flurry of activity has been largely attributed to the Bank of Japan’s (BoJ) decision to end QQE early. However, this is not to say that there is a halt in the yen’s progress. Indeed, the yen has gained around 10 percent versus the dollar in the last six weeks.

Not to be slouches in the equities department, the benchmark for the global benchmark indices is in better shape than it was a couple of weeks ago. Traders haven’t had much to do other than take stock of the reverberations of the aforementioned hawkish BoJ policy, though there’s been plenty of speculative activity in the equity and currency markets. There’s also been a lot of noise generated by a number of large cap tech firms launching new products, most notably a new IPO from the Japanese behemoth that will give Amazon a run for its money.

Besides, most major economies are on the verge of a recession, which should be a boon to investors in the short term. As a result, the risk averse have been stowing away in treasuries and safe havens. This, coupled with a lack of dynamism in the bond market, has seen rates hit a multi-decade low. With the Fed’s QE program at a standstill, it’s only a matter of time before the Fed starts to tighten its tent. Until then, the yen will continue to serve as the reserve currency of choice for the world’s leading central banks, including the US and UK. Despite the enviable growth in USDJPY, it has lost over 16 percent of its value from its October 21st high. That’s a steep price to pay, especially considering that Japan’s economy has been humming along at a near-record pace, according to the latest figures. A solid job market, combined with strong corporate earnings, should see the yen bucking the trend and regaining some of its luster in the coming months

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