• USD/JPY benchmark 1-month expiry FX option implied volatility sits just above late April/4-year lows at 6.6

• Those 4-year lows preceded the Apr 30 BOJ intervention that hit USD/JPY from 160.00 to the 155s

• Low implied volatility recognises the recent lack of actual/realised volatility upon which FX options thrive

• Butterfly spreads show the wings (low delta calls/puts) holding a premium over the body (ATM straddles)

• 1-month 10-delta butterfly spreads have doubled to 1.2 vols since last week; sub-1-month expiries even wider

• The JPY call wing is stubbornly bid — nobody wants to be short a JPY call when BOJ intervention hits

• The vol surface looks low in the body but quietly prices fear in the wings — recognising the BoJ threat

• Related comment - The intervention butterfly in the USD/JPY coal mine
USD/JPY spot and 1-month 10 delta butterfly spread


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