• USD/JPY option gamma bid up and topside strike demand increased as spot tested 160.00 barriers/triggers Monday

• Subsequent spot setback toward 159.00 drained any excitement and volatility measures are back under pressure

• 1-week daily realised volatility has collapsed to 1.32 - the lowest in G10 FX to evidence the recent lack of spot activity

• With minimal daily FX movement, there's no fuel left to keep short-dated implied volatility elevated

• 1-month implied vol back around 7.0 after its late July intervention led spike from 4-year lows at 6.0 to 10.0

• 1-month daily realised vol still includes the intervention spot drop, but will revert lower when it rolls out the equation

• Related comment - Why FX options continue to snooze
1-week and 1-month expiry USD/JPY FXO implied volatility


Implied vs realised vol


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