• Traders continue to buy USD/JPY topside strikes at/above 161.00 - would cover near-term break higher

• Despite the demand for upside protection, implied volatility remains heavy amid a lack of realised volatility

• 1-month implied vol traded between 8.85 and 9.0 in size on Monday — back to pre-Middle East conflict levels

• 1-month historic/realised vol sits at 8.0, highlighting the gap between what traders fear and what's actually happening

• The disparity tells the story — hedging demand is there, but the market simply isn't moving enough to justify it

• Benchmark 1-month 25d risk reversals maintain a steady 0.45 vol premium for USD/JPY downside over upside strikes

• Related - Trump's Iran deadline - how FX options are pricing the risk
USD/JPY 1-month implied vs historic/realised vol


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