The Japanese Yen (JPY) is consolidating above its late-November lows as yield spreads tilt modestly against it. With BoJ tightening expectations firm and key Fed and Tankan events approaching, near-term volatility risks remain elevated, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Wider US–Japan yield spread drives latest move

"The yen is steady, consolidating its recent pullback while still trading above the local low from mid/late-November. The latest pullback has been fundamentally driven, with US-Japan yield spreads widening modestly from their recent lows."

"The outlook for relative central bank policy remains supportive as we head into next week’s BoJ policy meeting, with markets pricing 23bpts of tightening. Near-term risk lies with the Fed, and the quarterly domestic Tankan sentiment figures scheduled for release early next week."