Policy expectations for the Fed and BOJ mean Friday's U.S. and Japanese data releases could potentially be range busters for USD/JPY.

The pair is currently orbiting the 150 psychological level after yen longs were trimmed over the past two days. With relatively modest open interest in yen futures and lower levels of implied volatility, there appears to be limited appetite for risk-taking ahead of upcoming central bank meetings.

However, overnight volatility of over 18% -- or over 75 basis point breakeven -- suggests that the current calm could be disrupted on Friday if the data challenges expectations about central bank policy.

Traders raised bets on a potential December Bank of Japan rate hike after dovish Board member Nakamura stated he wouldn’t oppose rate hikes, though policy will depend on the data. Overtime pay and household spending data (estimated at +0.4% m/m) for October is set to be released on Friday.

The November U.S. employment report also presents an opportunity for market movement. Fed officials have recently expressed confidence in the economy’s health and inflation outlook. A sharp deviation from market expectations -- +200K payrolls, 4.2% unemployment rate -- could challenge market confidence and shift rate cut bets for December's Fed policy meeting.

Key levels to watch after the data include the Ichimoku cloud top at 149.63 and the 200-day moving average at 151.99. A close outside this range would reset trading boundaries.

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

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