BUZZ-COMMENT-USD/JPY to be choppy as liquidity fades, events approach

Yen traders will need to stay agile in the coming sessions due to decreasing liquidity and several key events.

Lunar New Year will affect trading in Asia this week while the Fed is expected to maintain its rate corridor at 4.25-4.50% on Wednesday and the Bank of Canada is anticipated to cut its benchmark rate by 25 basis points to 3.00%. On Thursday, the European Central Bank is projected to reduce its rate by 25 basis points to 2.75%.

The combination of relatively high short-term U.S. rates and the potential imposition of U.S. tariffs on Feb. 1 support the dollar as a high-yielding haven, keeping USD/JPY hovering above its cloud top at 154.08.

Although there is interest in USD/JPY 160 call options anticipating dollar gains after these events pass, upward momentum is likely to be brief. One-year implied volatility remains significantly below levels seen at the beginning of the year, and the pricing for outlier USD/JPY moves is near a one-year low. Price congestion around 158 will likely limit any advance.

However, a decidedly dovish stance by Fed Chair Jerome Powell at his press conference on Wednesday or fading BOJ rate hike expectations would shake up the status quo. January Tokyo CPI is due on Friday.

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