Buy USD/JPY calendar call – Societe Generale

Forex Weekly note from Societe Generale Cross Asset Strategy team recommends buying Dollar-Yen calendar call.

Rationale

USD/JPY forward volatility premium is the cheapest in G10 (only inverted curve).

Volatility is historically high, making long FVAs unattractive (poor odds).

The vol curve steepens when the spot rises, suggesting a calendar call. 2m is the most expensive tenor: we Sell it and Buy the 4m, both at the 116 strike.

Setting a global KO at 110 nearly halves the premium and makes the trade profitable between 111 and 122 in two months, if the short call expires OTM.