USD/JPY risk reversals show a sharp drop in JPY call demand after BOJ

The JPY call value has nosedived in the aftermath of the BOJ decision, risk reversals indicate.
The sharp uptick in the risk reversals adds credence to USD/JPY's move above the key hurdle.

Omkar Godbole FXStreet Contributor

The one-month 25 delta risk reversals (JPY1MRR) have jumped to -1.00, their highest level since July 18 indicating a falling demand or the implied volatility premium for JPY calls (bullish bets).

The risk reversals had hit a low of -1.5 on Monday, as investors sought downside protection (JPY calls) against long USD/JPY position on fears the BOJ might announce a hawkish policy tweak.

However, the central bank refrained from raising the long-term yield target and only announced a wider target range (to 0.2 percent from 0.1 percent), thus making the ultra-easy policy more sustainable.

Consequently, the USD/JPY pair rose above 111.55, confirming a long-run pennant breakout and the demand for JPY bullish bets (JPY calls) fell sharply.

JPY1MRR

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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