The near-term focus for USD/JPY is a Bank of Japan policy announcement on Friday, the risk from which is probably helping to contain FX activity.
Overnight implied volatility gauges how much actual volatility to expect before the next working day's 10 a.m.
New York expiry, from multi-month highs at 13.0 pre-Federal Reserve to 9.5 now, a break-even of JPY 43 pips in either direction for a straddle - not excessive, but the top end of recent average.
One-week, one-month implied volatility lower after Fed event risk priced out but above mid-February pandemic lows and above fair-value measures of past actual volatility, so remain wary of choppy spot moves.
Flow data shows an increase in topside demand, some of which is funded by downside sales nL1N2LF0WU, so scope is seen for more spot gains.
Benchmark one-month risk reversals have yet to adopt a premium for topside strikes, although it's now close.
Focus is on 109.56 nL1N2LG0F2; a break of big 110.00 option barriers could fuel actual volatility and further potential gains.
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