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JPY: Vol-Buying Pays Off on Outsized Spot Reaction

JPY
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  • Today’s sharp rally in spot puts the price at the best levels since July and clear of the bull trigger marked at the mid-November high – and the straddle breakeven pricing of ~130 pips will mean those buying vol into the Fed/BoJ decisions would have been rewarded by today’s reaction.
  • We noted yesterday that January BoJ pricing could be the market to watch for the spillover reaction in JPY, and today’s slide in January hike pricing (down to +12bps from +18bps at the beginning of the week) has accompanied the JPY sell-off, and opened a broader range for the pair into 2025.
  • The front-end of the JPY implied vol curve is skewed further in favour of the front-end today, with 6m vols (capturing the next few BoJ meetings and the first months of the Trump Presidency) clearing 10.5 points to build well off the post-election lows. Demand for JPY downside clear to see in exchange-traded options, with the USD/JPY put/call ratio dropping to 0.8 today.
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  • Today’s sharp rally in spot puts the price at the best levels since July and clear of the bull trigger marked at the mid-November high – and the straddle breakeven pricing of ~130 pips will mean those buying vol into the Fed/BoJ decisions would have been rewarded by today’s reaction.
  • We noted yesterday that January BoJ pricing could be the market to watch for the spillover reaction in JPY, and today’s slide in January hike pricing (down to +12bps from +18bps at the beginning of the week) has accompanied the JPY sell-off, and opened a broader range for the pair into 2025.
  • The front-end of the JPY implied vol curve is skewed further in favour of the front-end today, with 6m vols (capturing the next few BoJ meetings and the first months of the Trump Presidency) clearing 10.5 points to build well off the post-election lows. Demand for JPY downside clear to see in exchange-traded options, with the USD/JPY put/call ratio dropping to 0.8 today.