Market Rumours

USD/JPY jumps on news BOJ to hold unscheduled monetary policy meeting from 0500 GMT, with BOJ governor Shirakawa briefing at 0730 GMT; if meeting yields any decisions on further monetary easing, for which government has been lobbying, that could buoy pair further, with next target at 87.50 vs last 87.07, says Mitsuru Sahara, senior manager at Bank of Tokyo-Mitsubishi UFJ. But notes with Fed holding policy interest rate at rock bottom for near future, potential for further falls in long-term U.S. Treasury yields, effect on USD/JPY of any additional BOJ easing could be stronger in longer term as could eventually temper JPY-positive deflation; "in the shorter term, with U.S. rates so low, any USD-positive shifts in the U.S.-Japan rate differential would have a limited effect." Adds "for now the quickest way to temporarily tackle the strong yen remains for the government to intervene in market" by buying USD.

****BOJ Governor Masaaki Shirakawa calls unscheduled monetary policy meeting from 0500 GMT "to discuss monetary control issue based on recent economic, financial developments." Market players will closely watch whether policy board decides on additional easing steps, such as increases in treasury discount bill, JGB outright purchases, amid government pressure on BOJ to heighten quantitative easing policy. Policy-sensitive 5-year cash JGB yield sank 4 bps to 0.495%, USD/JPY also breaks above 87 on news. Shirakawa will meet press from 0730 GMT.

1-month USD/JPY ATM implied volatilities down at 13.15%/13.85% from 13.70%/14.40% Monday in New York; falls come as demand eases for USD-downside hedges after spot rises above 87.00 following BOJ announcement of unscheduled special monetary policy meeting from 0500 GMT, with BOJ governor Shirakawa briefing at 0730 GMT. Option prices may stay under negative pressure in coming sessions if any additional monetary easing measures are announced by BOJ, as such steps could cut into recent JPY strength, senior options dealer at major Japanese bank says