• USD/JPY extends 40 year highs through 163.40 early Thursday as Oil and US yields advance ever higher

• Option markets lift USD/JPY implied volatility, but gains tepid - benchmark 1-month from 4-year low at 5.95 to 6.1

• The lack of FX realised volatility makes holding options expensive without actual intervention, hence low implied levels

• 1-month daily USD/JPY realised volatility is 4.9 - reflects the lack of actual volatility and why long vol positions are struggling

• However, risk reversals maintain a strong JPY call over put premium to reflect the intervention threat haunting USD/JPY

• OTM JPY call/USD put options offer more cost-effective hedge against USD/JPY intervention
USD/JPY implied vs realised vol


USD/JPY 25 delta option risk reversals


(Richard Pace is a Reuters market analyst. The views expressed are his own)