• USD/JPY trades 160.00 - many exotic option barriers/triggers at that level now expired or knocked-out

• The related long gamma weighing option premiums and helping to contain FX, is now much reduced

• Implied volatility spikes from recent/4-year lows - benchmark 1-month expiry now 7.0 from 6.3

• Most telling is 1-month 10 delta butterfly spread from 1.2 to 1.6 - new high since 2022 (was 0.6 early May)

• Holders profit from USD/JPY breakout in either direction. Risk reversals strong bid for JPY calls over puts 1.2

• JPY calls benefit from lower spot and higher implied volatility - the USD/JPY spring is coiled
USD/JPY FX option implied volatility


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


USD/JPY 25 delta risk reversals


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