ING: The JPY - FJElite

Given so many global risks at present, it seems strange that USD/JPY has been able to trace out mostly a two yen trading range through the month of April. One week realised volatility near 5% is exceptionally low. The Fed and Bank of Japan rate meetings, plus a whole host of data and presumably geopolitical risk, warn of a possible USD/JPY breakout this week.

For tomorrow morning's Bank of Japan rate meeting, our economists warn that the risk of a BoJ rate hike is underpriced. Indeed, a hike would be a complete surprise to the market. The BoJ also released an updated Outlook for Economic Activity and Prices, which could see inflation forecasts revised higher, with the growth outlook being cut. Barring a surprise hike and our view that the Fed meeting could be slightly positive for the dollar, plus oil prices remaining high, USD/JPY could have all the ingredients for an upside breakout this week.

Close to 160.50 is this year's high. The risk is of a move to the 2024 high of 162, accompanied by higher traded volatility as investors brace for possible Japanese FX intervention.