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Japan PM Sanae Takaichi Unveils Growth Plan as BOJ Independence Concerns Lift Bond Yields 
BOJ Expected to Hold Rates Steady While Signaling More Hikes Ahead 
The Bank of Japan (BoJ) surprised the market Friday by increasing its buying in 5-10 year bonds, trying to keep the 10-year JGB yields near zero. This move comes after the central bank unexpectedly skipped widely anticipated bond-buying operations in shorter maturities, which and pushed JGB yields higher.
Markets now wait to watch the decision of the BoJ at its 2-day monetary policy meeting, that is scheduled to be held on January 30-31st, the central bank likely to stay pat as per the forecasts.
The concerted surge in the dollar since the US elections has lifted many boats, including correlations between USD/JPY and USD/high-beta pairs to multi-year highs that have historically offered stiff resistance (refer above chart).
There is a soft cap on how far correlations can rise beyond this point between a low-yielding funding currency like the yen and other pro-cyclical FX, which leads us to think that the next major thematic move in USD-correlations lower will likely be led by a de-coupling of JPY-(and possibly EUR-) crosses in response to a worsening risk backdrop.
We still await a turn in realized correlations to pull the trigger on a broad swathe of cross-yen trades, but highlight the following as potential opportunities created by the extreme set-up that are monetizable at the current market:
Digital JPY calls vs. CAD and KRW as protectionism hedges.
USD/BRL/JPY correlation triangles as quasi-hedged carry trades.
