USD/JPY vols head lower as spot extends the recovery to trade back into 119.00. 1-wk vols are sharply lower at 7.00/7.75, 1-mth shows 6.75/7.05 and the 3-mth is at 6.85/7.10. The 6-mth and 1-yr contracts indicate 6.80/7.05 and 6.95/7.15 respectively.
A number of intra-day players and interbank types used the lofty vol levels to liquidate near-term open interest after the modest spot recovery. However, there remains some downside risk in spot as market participants remain nervous over the BOJ meeting. This should underpin the curve despite the decent pullback in the front end since the US NFP release.
Sources note 118.50 strikes trading for January 9th and January 17th. A 10th August 116.50 traded and 120.00 One Touch interest was noted for 25th January and 30th January. Elsewhere, risk reversals come in a little to show 0.15/0.90 in the 1-wk and 0.50/0.80 in the 1-mth 25-d.
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