• The USD/JPY correlation between spot performance and risk premium remains firmly on the downside

• FX option risks reversals highlight this with a strong premium for JPY calls over puts vs the USD

• This means that when spot trades lower, implied volatility trends higher - rewarding FX option holders

• Benchmark 1-month expiry 25 delta risk reversals are 2.5 JPY calls over puts - up from 1.9 in mid September

• Late July intervention took the contract to high since April at 3.0, setbacks have stalled at 1.8 since then

• Market still fearful of intervention, especially since increased verbal rhetoric - the likes of that from Atsushi Mimura on Monday
USD/JPY FXO implied volatility


USD/JPY 25 delta risk reversals

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