• USD/JPY dropped 157.25 to 155.69 Monday - another bout of suspected intervention after last week's fall from 160.00

• Markets are on alert for more, with FX options the clearest gauge of intervention fear

• 1-month 25-delta risk reversals reached 2.0 in favour of JPY calls over puts - a new high since January

• That's up sharply from 0.55 early Thursday, just before Japan's first intervention from above 160.00

• This JPY call over put skew signals the options market sees far greater risk of a sharp USD/JPY drop than a rally

• Risk reversals are a volatility play - when spot falls and implied vol rises together, JPY call holders profit on both

• USD/JPY option risk reversals - turning intervention fear into profit
JPY=EBS


USD/JPY 25 delta risk reversal


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