Median 4-week horizon returns (vol pts.) and information ratios from selling cross-yen 6-week straddles in 2016.

Options delta-hedged daily at LDN close using smile forward deltas and option-expiry matched forwards.

We believe that BoJ has shifted its monetary policy stance in last monetary policy meeting (MPM), however, any decisions by the central bank at the next MPM (including some “surprises” discussed above) would be unlikely to play a role of game changer, unless the bank (and the government) implements the regime shift in “helicopter money policy”.

As was seen in January when EURJPY rally ignited by the surprising BoJ decision to introduce NIRP lasted only for three days, given the current condition, where JPY’s fundamentals are solid (e.g. increased current account surplus).

Short EUR/JPY 6-week straddles to monetize its relative gamma richness.

High frequency (hourly) EUR/JPY realized vols are running at a 7.5%-8.0% pace excluding yesterday’s BoJ-related gyrations, a good 1.5-2.0 vols below current short-end ATMs.

This is thinner than in higher beta crosses such as AUD/JPY, but we prefer EUR/JPY since comparable policy dilemmas of the ECB and BoJ around further QE and resulting tapering concerns ought to suppress directional momentum in the cross and render it relatively inert to bond market stress of the kind witnessed earlier this month.

The 6-week option expiry also falls before the US election date and removes direct exposure to a market-unfriendly outcome on the day.