JPY Options in Focus Ahead of BOJ Meeting

BOJ in Focus for JPYThe big focus across early European trading on Monday is the upcoming BOJ meeting due to take place overnight tonight. While the BOJ is not expected to make any changes to its current ultra-loose rates regime, action in the options market shows that there are plenty of defensive plays being set up in case anything in the bank’s statement and guidance causes a breakout move in JPY.  With markets sensing a likely forthcoming shift in BOJ policy this year, traders are wary of a hawkish signal sending JPY soaring higher, hence the roughly $3 billion in defensive option expiries this week.BOJ Laying the Groundwork For Hawkish Move?The BOJ has been consistent recently in outlining its commitment to maintaining monetary easing for now. However, governor Ueda has signalled that the bank will be reviewing its policy in light of developments within the inflation environment and could make changes from March. Indeed, recent BOJ moves, such as the widening of the YCC target band have been interpreted as laying the groundwork for policy normalisation.Two-Way JPY RiskIf the BOJ does give any firmer signal that higher rates are coming soon, JPY is vulnerable to a sharp move higher. On the other hand, if the BOJ is simply seen reiterating the same message that we heard last time around without any alterations, this should keep JPY pressured near-term.Technical ViewsUSDJPYThe rally in USDJPY has stalled for now into a test of the 148.98 resistance. With the broken bull trend line sitting just above, this is a key resistance area for the market which bulls need to break to trigger a resumption of the broader bull trend. To the downside, 145 is the key support to watch near-term.