Geopolitical risks have fuelled JPY demand, but USD/JPY is struggling to retreat below 108.00 -- extending Friday's 107.84 low to 107.77 Monday.
However, the options market has ramped the cost to insure against deeper declines.
Benchmark one-month USD/JPY implied volatility, which determines the price of an options premium, has risen from record lows sub-4.0 in late December to 5.9 in Asia today - its highest since 6.25 in early November.
That's a 50% increase in the premium for a straddle, which now requires owners to capture 150 JPY pips in either direction, before expiry, to break even.
One-month expiry risk reversals show the implied volatility premium for JPY calls over puts (the right to buy JPY versus sell), has increased from 0.85 to 1.35 since late December - a new high since October.
Outright flows show buyers of strikes down to 106.00 within the next month, giving them the right to sell USD/JPY at lower levels.
A USD/JPY close below the 108.11 daily cloud would increase risk of a deeper drop nL1N29B04U