• A nervous market had braced for official USD/JPY intervention during Friday's thinned US holiday trade - it never came

• USD/JPY has bounced back into the low 161s, recovering fromThursday-Friday's slide from mid-162s to a low of 160.49

• Broader FX implied vol is easing as USD momentum fades and the summer lull bites — 1-month vol slips to 7.1 from 7.65 pre-NFP

• However, it remains a fair way from recent 4-year lows at 6.1, leaving room for further vol compression

• But the options market is not standing down on intervention risk — JPY calls continue to command a hefty premium over puts

• 1-month 25 delta risk reversals are 1.5 from 1.7 Thursday - highest since USD/JPY's early May intervention drop to 155.00

• The message from options is clear: volatility may be falling, but the market is not ready to dismiss the threat of Tokyo stepping in
USD/JPY FX option implied volatility


USD/JPY 25 delta risk reversals


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