• USD/JPY spot smashed above 160.00 Wed's, dragging 1-month implied vol up from a 4-year low of 6.7 to 7.6 since

• Traders are buying topside strikes toward 165.00 — hedging the risk that the JPY selloff has further to run

• But the 1-month 25-delta risk reversal tells a conflicted story — JPY calls meet demand at 0.55 vol above puts

• That is unusual — normally a surging USD/JPY would see demand for topside (JPY puts) dominate the skew

• The inversion signals intervention fear — the higher spot goes, the louder Tokyo's warning bells ring

• Owning JPY calls via the risk reversals or outright, would hedge the risk of a sudden JPY surge

• Options markets are caught between chasing the USD/JPY move higher and hedging the risk of a violent JPY rescue
USD/JPY 25 delta risk reversals


USD/JPY FXO implied volatility


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