Goldilocks is bad for USD/JPY momentum though good for volatility sellers.

USD/JPY is holding a gain as Treasury yields and stock prices rise following a strong flash PMI for November. The positive PMI report along the dollar’s safe-haven status should help keep the broader USD supported.

Meanwhile, the yen failed to garner any material benefit from Japan’s latest inflation data or PMI figures. Those anticipating a BOJ rate hike in December point to core CPI exceeding the BOJ’s 2% target, as well as small improvements in services and persistent input inflation. OIS is pricing in 15 basis points of hikes for the December meeting. Traders await more inflation readings next week though, if the yen weakens further, odds of a hawkish shift in BOJ rhetoric will likely increase.

In this "not too hot, not too cold" scenario for USD/JPY, the market presents an opportunity for selling short-dated volatility. The strategy is even more appealing when U.S. equity markets show no signs of faltering.

Implied yen volatility is already lower across most tenors, though there is some demand for one-year yen calls. For momentum traders to engage, USD/JPY needs to break out of the 152-157 range. Until such a breakout occurs, market participants will focus on directional bets in yen crosses. For more click on

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(Robert Fullem is a Reuters market analyst. The views expressed are his own.)

((robert.fullem@thomsonreuters.com;))