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Demand for JPY Hedges Picks Up Alongside BoJ Tightening Talk

JPY
  • After a quiet first two sessions of the week, FX options markets are busier early Wednesday, with BoJ-centric stories from MNI and Jiji helping stimulate activity. Total USD/JPY options notional traded is ~20% ahead of average for this time of day, and conversely to spot moves today, upside protection is in demand - evident in decent interest across 140.65, 144.50 and 146.25 ITM call strikes, tipping the put/call ratio to 0.71 for DTCC-tracked trades today.
  • Two-week vols, now capturing the outcome of the March 19th BoJ decision, are further bid, adding to yesterday's rally to touch 9.3 points and the highest level since early February. This tips 2w vols above the YTD average, but still just shy of the 12m rolling 2w vol.
  • The bid in the front-end of the JPY vol curve has added to the recent vol skew, as 3m vols fail to keep pace and remain subdued: 3m implied holds at 8 points, close to 2 points below the rolling 12m average, despite capturing both the March and April BoJ decisions. OIS markets now price a ~50% chance of a 10bp March hike (vs. 30% yesterday), with a BoJ exit from NIRP now fully priced through the end of the June meeting (vs. 90% prior).
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