• Risk reversal options show any volatility risk premium for strikes in one direction versus the other

• 1-month 25 delta USD/JPY risk reversals paid 1.625 and 3-month at 0.8 JPY calls over puts on Monday

• For 1-month it's the highest downside over upside strike premium in 2-weeks - 1.75 is the 2 July peak since May

• 3-month expiry already a new high since May. Reflects recent spot setback and greater perceived risk of more losses

• Downside risk reversal skew suggests implied volatility should increase when USD/JPY falls

• Implied volatility currently subdued/heavy as spot consolidates last week's setback from 40 year high at 162.84

• Intervention fear has been keeping JPY call skew elevated over recent months, GPIF headlines added weight on Friday

• FX options poised for US CPI - but are they underpricing the risk to FX
USD/JPY 25 delta risk reversals


USD/JPY FX option implied volatility


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