USD/JPY's decline from 107.68 to 106.00 has revived JPY call bias

• Risk reversals show a rise in implied volatility premium for JPY calls.
• Traders hedging against deeper USD/JPY drop.

The one-month 25 delta risk reversals show the implied volatility premium for JPY calls has increased to 1.62 today vs. 1.27 on Feb. 28, indicating the traders expect USD/JPY to extend the decline further towards the recent low of 105.55.

It is worth noting that JPY the implied volatility premium for JPY calls dropped significantly from 2.42 to 1.27 as the spot recovered from 105.55 (Feb. 16 low) to 107.91 (Feb. 21 high). However, the pair's failure to hold on to gains above 107.00 seems to have revived demand for JPY bullish bets (calls).

Also, the weekly risk reversals are being paid at 1.75 JPY calls vs. 0.73 JPY calls on Feb. 21. Again, the rise in premium indicates pick up in demand for JPY calls.