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.

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