• USD/JPY downside strike demand and premium have risen notably over recent sessions

• Price action said to be driven by markets placing greater emphasis on impending BoJ rate hike risk

• Market is currently pricing just 4.28bps of hikes for April 28, 16.15bps for June 16, and 23.5bps for July 31

• Benchmark 1-month 25-delta risk reversals show JPY calls commanding a 0.9 vol premium over puts

• That's the highest downside over upside strike premium since early March - up from 0.4 early last week

• Implied volatility was capped throughout the Mid-East conflict, reflecting continued low realised volatility in familiar range

• However, the elevated JPY call premium suggests markets are not ruling out more USD/JPY losses and a pickup in implied vol
USD/JPY FXO implied volatility


USD/JPY 25 delta risk reversals


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