• Continued risk aversion saw USD/JPY extend Thursday's 158.25-156.69 drop to 156.08 Friday

• Its since recovered 157.00, where $1.5 billion option strike expiries/hedging may help contain for now

• FX options have ramped the cost of volatility protection and the premium for downside over upside strikes

• 1-week implied volatility at 9.0 is almost 4.0 above this weeks low - with additional risk premium from Wed's Fed

• Benchmark 1-month expiry implied vol was 7.1 mid week and has since traded 8.0

• 1-month 25 delta risk reversals have increased the volatility premium for JPY calls over puts to 2.151-week and 1-month expiry USD/JPY FXO implied volatility Click here
USD/JPY 25 delta risk reversals

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