• USD/JPY trading tiny intraday ranges around 159.00, with 159.40 the highest post-intervention peak (21 May)

• Pre-intervention rate was above 160.00, knocked to 155.50 (Apr 30) then 155.00 (May 6)

• Markets clearly wary of further intervention, capping upside, June rate hike expectations cap gains, too

• Option implied vol near pre intervention and 4-year lows, with realised vol even lower, reflecting subdued price action

• Yet FX options are primed for an eventual breakout, with a clear downside lean

• 1-month 10 delta Butterfly spread doubled to a 1.2 premium over two weeks, flagging that FX breakout risk

• Risk reversals keep a strong premium for JPY calls over puts - showing intervention risk still considered live
JPY=EBS


USD/JPY 25 delta risk reversals


USD/JPY spot and 1-month 10 delta butterfly spread


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