• Intervention threat and long gamma in FX options have combined to suppress USD/JPY spot and crush volatility

• Much of that long gamma stems from exotic options - barriers and triggers clustered from 160.00 and acting as a spot ceiling

• Many exotic structures expire over the next week - the gamma wall is crumbling and USD/JPY's shackles are loosening

• FX option vols have found a floor at 4-year lows - risk/reward looking more attractive to buyers, especially if 160.00 breaks early

• A 160.00 break forces market to cover short gamma - fuelling spot gains and driving volatility sharply higher

• Related - FX options wrap - The great volatility vacuum
1-week and 1-month expiry USD/JPY FXO implied volatility


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