Months of low USD/JPY realised volatility has forced implied volatility close to historic lows, presenting opportunities for value hunters.
Deeper implied vol declines are likely to be limited given the already low levels, and it doesn't take much USD/JPY movement to offset the decay cost of holding them.
Any sudden bouts of volatility or larger directional moves can lift implied vols to reward owners too, as we saw late last week.
One-month USD/JPY implied vol met demand at 4.9, on one of its very rare forays below 5.0 on Thursday, reaching 5.4 vols Friday as USD/JPY fell on pessimistic China comments about the U.S trade deal.
The difference between 4.9 and 5.4 on a typical $30-million trade, would have made over $35,000, perhaps more if the attached hedge had managed to capture the USD/JPY fall.
Hedging the risk of a USD/JPY directional move is also cheap at these low implied vol levels, especially to the topside, where lower perceived risk offers a discount nL2N27G08Z.
One-month USD/JPY implied vol has drifted back to 5.1 Monday.