Well, the overnight session was described as “listless” by at least one Asia-based trader as markets are i) laser focused on Yellen’s testimony and ii) anxiously waiting for the Bank of Canada to see if the “hawks take flight”, as it were.

“Asian currencies are trading listless ahead of Yellen’s testimony,” Andy Ji, a Singapore-based currency strategist at Commonwealth Bank of Australia said. “Investors want to get more clarification over the timing of the balance-sheet reduction and pace of rate increases.”

“The markets are completely fixated on the Bank of Canada meeting,” Stephen Innes, a senior trader in Singapore at Oanda, wrote in a note. “Fixed-income investors will likely take their lead from whether the Bank of Canada hikes rates and track cues from Fed Chair Yellen, more so if she taps the brakes on the FOMC hawkish lean.”

Right. It’s all about DM policy normalization, and amid the calm before the storm, Asian stocks rose for a second day, while government bonds were slightly softer in what Bloomberg describes as an “uneventful low-volume” session.

There was some amusing action in USD/JPY. Apparently, some folks thought the BOJ’s offer to lend 2.047t yen of government debt was an attempt to intervene in markets when really, it was just part of the bank’s normal activity. And indeed, they had offered to lend a similar amount in the morning.

“Leveraged accounts immediately started buying dollars,” a trader said. And so we got this:

That’s all kinds of fun. Of course there were other reasons for yen strength. Like equity gains and higher 10Y yields in the US.

Ultimately, USD/JPY is ready to test 115 after blowing past May highs to reach its strongest level since March:

Additionally, to follow up on what we said first thing Monday morning, you need to keep an eye on the JGB 5Y yield because now, that’s become the new frontier in the fight to keep 10Y yields anchored. On that score, there was good news for the BoJ on Tuesday as a five-year JGB auction drew a bid-to-cover of 4.85. That’s the highest since August 2014, and up from 4.71 at previous offering on June 8.