USD/JPY broke below 135.00 on Wednesday. Still, economists at Credit Suisse now leave room for USD/JPY to rise to as high as 142.00 this month, in case the Bank of Japan maintains rigid adherence to YCC at its Friday meeting. 

Risk reversal skews are becoming bid for JPY calls

“It’s very understandable why risk reversal skews are becoming bid for JPY calls and implied USD/JPY volatility is rising, even as spot pushes still higher.”

“We now leave room for USD/JPY to rise to as high as 142.00 this month, in the case where Kuroda maintains his rigid stance on Friday. But we still maintain our 4 May view that 125.80 is a range low rather than raise that too, as a shift in stance on YCC (be it a higher target level or a shorter duration as target) could be a catalyst for a step shift lower and a new narrative for JPY.”