High JPY volatility as direction of BoJ’s monetary policy remains uncertain – Commerzbank

Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, expects JPY volatility to persist as uncertainty about the BoJ's stance is set to diminish gradually at best.

Clarity is unlikely to arrive overnight

“Even once the new BoJ governor has taken office, clarity is unlikely to arrive overnight. No experienced central banker would announce a 180° turnaround in monetary policy or any other significant strategy setting in one fell swoop. The reaction of currency markets and bond markets could be too disruptive. We should, I think, expect uncertainty about the BoJ's stance to diminish gradually at best.”

“I consider the market's opinion expressed in the implied USD/JPY volatilities to be questionable. That in the very near future the direction of monetary policy will become clear (and thus generate high JPY volatility), but after that everything will be clear (and thus JPY volatility will decrease again), is in my view an over-optimistic assessment.”