The Nikkei has taken off in Asian trade in a move triggered by a USD/JPY breakout. USD/JPY traded through August highs and seems to be heading towards January highs. The pair topped out at 105.44 in January and traders are likely to be eyeing this level in the near term.
This move in USD/JPY seems to have triggered greenback strength across the board as risk currencies are also losing ground to the USD. With USD/JPY pushing higher, the Nikkei is within reach of its July highs.
Heading into the BoJ meeting, which commences tomorrow, it seems the general strategy is buying dips in the Nikkei and USD/JPY. There has also been plenty of talk around a pickup in demand for Nikkei short-date calls. This might have been a key driver of the price action, given the significant outperformance of the index today.
On the economic front, it has actually been a quiet day, but perhaps the labour cash earnings reading out of Japan helped alleviate some of the fears around the economy. The reading showed 2.6% growth in July, while the market was only expecting +0.9% - this will help feed into the BoJ’s theory that inflation will rebound into the end of the year.