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Jan 22 - 04:55 AM

USD/JPY - Options Not Complacent About Impending BoJ Risk

By Richard Pace  —  Jan 22 - 02:45 AM
  • Markets not expecting policy or forward guidance changes from BoJ Tuesday

  • However, option markets taking no chances and have increased risk premiums

  • Overnight expiry now 10-am New York on Tuesday - so includes the BoJ

  • Overnight implied volatility increased from 13.0 to 18.25

  • Premium/break-even for straddle now 111 vs 80 JPY pips in either direction

  • Not excessive (was 36.0 before Dec 19 BoJ), but traders loathe to sell

  • O/n expiry risk reversals add USD/JPY downside vs upside implied vol premium

  • It's gone from flat (no directional premium), to 3.5 for JPY calls over puts

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary

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