• Recent sharp USD/JPY falls have seen FX option prices test/match post intervention extremes from late July

• Benchmark 1-month expiry implied volatility actually broke the late July 10.5 peak to trade 10.65 on Friday

• That's a huge increase from levels around 7.15 ahead of the spot slide from the upper 159s to 155.25

• Risk reversals were ramped higher, too - benchmark 1-month 25 delta from 1.75 to 2.75 JPY calls over puts

• That contract peaked 3.0 in late July - its highest since April 2025 - driven by outright demand for JPY call strikes

• 3-month expiry 25 delta risk reversals broke their late July highs at 1.9 for 2.05 - last seen January 2025

• Those already long JPY calls well rewarded this week, strikes as low as 150.00 in demand over last 24 hours

• Bottom line - The FX options market is protecting against ongoing volatility and deeper USD/JPY declines
USD/JPY FXO implied volatility


USD/JPY 25 delta risk reversals

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