Bank of America Posts Strong Q4 2024 Results, Shares Rise 
UBS Projects Mixed Market Outlook for 2025 Amid Trump Policy Uncertainty 
OCBC Raises Gold Price Forecast to $5,600 as Structural Demand and Uncertainty Persist 
China’s Growth Faces Structural Challenges Amid Doubts Over Data 
UBS Predicts Potential Fed Rate Cut Amid Strong US Economic Data 
Gold Prices Slide as Rate Cut Prospects Diminish; Copper Gains on China Stimulus Hopes 
Mexico's Undervalued Equity Market Offers Long-Term Investment Potential 
Wall Street Analysts Weigh in on Latest NFP Data 
U.S. Banks Report Strong Q4 Profits Amid Investment Banking Surge 
S&P 500 Relies on Tech for Growth in Q4 2024, Says Barclays 
Morgan Stanley Raises KOSPI Target to 5,200 on Strong Earnings and Reform Momentum 
Goldman Predicts 50% Odds of 10% U.S. Tariff on Copper by Q1 Close 
Oil Prices Dip Slightly Amid Focus on Russian Sanctions and U.S. Inflation Data 
We hold short JPY skew risk as valuations are stretched. Short-dated tenors are exposed to BoJ under delivering this week, but longer dates offer consistently rich risk premia to fade.
JPY vol risk premia are extreme ahead of next week's BoJ meeting, with front end vols at their most elevated since Oct 2008. 1W expiries covering the BoJ are marked at a whopping 26.6, and the 1M-3M curve is at its most inverted at -2.5vols. JPY risk-reversals are also a pocket of acute stress, having steepened to multi-year highs.
Selling rich JPY skews looks compelling as the market is digesting Brexit and an uneventful Upper House election, and the attention turns to prospects of concerted balance sheet expansion and fiscal spending.
Even if the size of the fiscal package disappoints and USD/JPY resumes its grind lower on cleaner positioning, valuations, and historical back tests are supportive of short positions in JPY skews. We have previously noted the abrupt widening in JPY risk-reversals, especially leading into the Brexit, and found them to be at stretched levels.
JPY RRs have narrowed as JPY softened on chatters of “helicopter money”. Please be noted that this move, along with the pickup in USD/JPY since early July owes primarily to unwind of JPY longs and widening in USD vs JPY real rates spreads
The pairs which combine cheapest valuations and best historical returns are highlighted. We hold EUR/JPY 3M RR entered 20-Jun and picked up 1Y CAD/JPY and NZD/JPY RRs on 13-Jul. Sellers of JPY RRs will find their best prospects in EUR/JPY and CAD/JPY at the moment.
