• USD/JPY FX option implied volatility hit hard after BoJ press conference couldn't offset dovish hike disappointment

• FX options had been primed for excessive FX volatility which inflated short dated expiry implied volatility pre BoJ

• Funds were said to have been holding downside strike options looking for hawkish BoJ outcome

• Those options now being unwound and are fuelling the broader implied volatility sell-off

• 1-week USD/JPY implied vol hit 10.5-9.0 so far and the benchmark 1-month from 9.0 to 8.5

• Topside hedges still in play - 160.00 bought earlier this week and more since BoJ

• Intervention risk will increase if USD/JPY continues to unwind the early Sep drop from 160.00 to 153.001-week and 1-month expiry USD/JPY FXO implied volatility Click here

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