The rebound of the US dollar against the Japanese yen eases intervention concerns, while divergence emerges between the options market and rate hike expectations.

(1) Driven by news that the U.S. Treasury is expanding long-term U.S. bond buybacks, the USD/JPY pair dropped to near 158 on Wednesday, with option implied volatility rising as a result. The market bought options with strike prices as low as 157.00 to hedge against the risk of further short-term declines. The 1-month 25 Delta risk reversal indicator rose to 2.0, and the premium for yen call options widened.(2) As the USD/JPY pair rebounded to a mid-high range around 158, actual volatility remains low, and volatility sellers have re-entered the market, indicating a reduction in concerns over significant currency fluctuations.(3) Since the exchange rate is still below 160, the risk of Japanese authorities intervening in the foreign exchange market has decreased. Although market bets on the Bank of Japan raising rates faster are increasing, option trading flows suggest that investors have not fully formed strong expectations for the yen to continue strengthening or for gains to further widen; there is still disagreement in the market about the future direction of the yen.