Since the global financial crisis, the Bank of Japan's policy decision is shaping up to be the biggest risk for the dollar-yen pair.
The overnight implied volatility of the currency pair went up as high as 54.4 vol, the highest since November 2008, as traders positioned for another policy tweak after a surprise move in December. The 10 year bond yield above the central bank's ceiling for three straight days has been raised by traders on the BOJ.
The move is likely to spur a jump in the yen and cause a rise in global bond yields, with the impact of another shift in BOJ policy across the globe. If the central bank is strong, the dollar-yen is expected to rally as investors look to cover their short positions.
The overnight volatility level of the dollar-yen suggests that there is a 70% chance that the currency pair will trade in a 125.12 -- 132.29 range on Wednesday, compared to around 129 on Tuesday.
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