Why is the Bank of Japan nervous? ...To properly represent (and trade!) the Yen related pairs, it is strongly recommended to create a Yen-based currency basket. (I did attempt to import data into TV from such a basket - weighted by the acceleration differential between the USD, EUR, GBP, AUD, CAD, CHF and a basket of Central European currencies versus the Yen but for some reason I couldn't make that work. I.e., the main chart here represents the next best thing which is an unweighted USD|EUR|GBP|AUD|CAD / YEN basket, to convey the same idea.)
The central problem the Bank of Japan is facing at this moment, continued acceleration of rate (and thus, price) differentials relative to the other G-20 currencies. (I.e., The Yen price levels, alone, would not cause the same concerns.) On the top of it, China's PBC decided to dump massive amounts of Yen (and Euro) reserves, still actively taking place as of last Friday.
The now solid uptrend in Japanese economic indicators also continue to add to the upward pressures, leaving the BoJ with ever less wiggle-room.
FX Yen options implied volatility - 8.34%-8.93% - is running under historical levels, (i.e. they are considered "cheap") despite the increased Call buying, as of late.
Ultimately, what the BoJ will be forced to do here, and most importantly When(?) and to what extent, is still open to debate but two aspects of this issue became rather obvious;
1) At this point markets, in general, seem to maintain a complacent stance (see options pricing) regarding the significance and potential magnitude of a BoJ move;
2) This is a 30-year, $3+ Trillion Dollar short position which will have to be unwound (covered) in the event of a BoJ interest rate hike and as such, liquidity will be a major issue!
To illustrate the last point - above -, this was the recent EURJPY action following a rumor that the BoJ "may do something";
