Cost of forex volatility moving higher

For some nations, haven status is their Xanadu. For others, it can sometimes feel like a mythical curse.

Japan would like a weaker yen and it has been getting its way of late.

But a quick burst of eurozone funk and traders assume familiar crash positions, piling into the likes of the yen and Swissie.

Monday’s switch from risk-on to risk-off following the inconclusive Italian election saw an intraday range for the dollar/yen of 4 per cent. For the euro/yen it was 5.2 per cent, which was the ninth-biggest such move this century, according to Trading Post’s crunching of Bloomberg data.

Little wonder that the cost of volatility is moving higher.

The euro/yen one-month implied volatility has spiked to nearly 18, the highest since October 2011.

The JPMorgan G7 volatility index – a broader gauge of forex vol – has moved above 10 for the first time in eight months.

All this may have implications beyond basic forex dealing. As Trading Post noted several weeks ago, some bulls were talking up the return of yen carry as another support for markets. But such costly volatility is not a friend to the strategy.

jamie.chisholm@ft.com