The claim here is wrong in interesting ways. First, implied volatility does not entail a bearish outlook on asset prices. This is especially true at shorter timeframes. Presumably “the cost of bearish options” refers here to implied volatility. So, absent some additional claim about downside vs upside implied volatility skew, this is also a claim about the cost of bullish options on Japanese shares. So it does not follow that bearish investors are “sending Kuroda a clear message” via higher implied vol.
There’s also a factual issue here – Nikkei implied volatility is high, but not at an eight-month high. It’s lower now than the 28%+ levels seen in February. And as I’ve noted before, rapidly rising implied volatility over the last several months actually coincided with rising equity prices. It’s analogous to a VIX move from 12 to 18 alongside a 200 point SPX rally.
Nikkei 225 Volatility Index. Source: Nikkei, Condor Options
Additionally, positioning has to date been more about calls than puts:
NKY option open interest. Source: Bloomberg, BNP Paribas
The only bearish-for-Japan argument I can imagine based on option market activity would be that upside IV skew in JPY:USD CME futures has shifted over the last couple weeks. Higher one year call IV for 6J futures is evident here, but at SocGen noted recently, the most plausible explanation for this is that the most recent leg of the USD:JPY rally was remarkably less volatile (in historical standard deviation terms) than the moves we’ve seen since last October. That makes it less attractive to own unhedged dollar-yen upside, so the change in risk reversal/skew measures reflects a routine adjustment to recent price history, rather than a tectonic change in expectations. It’s also not the case that yen puts have gotten any cheaper.
Yen futures one year implied volatility skew. Source: CME, OptionWorks
USD:JPY 1Y risk reversal and spot price. Source: Societe Generale
The big bearish line has been, for months, that at some point all the jawboning in the world won’t be enough and the Japanese economy will have to start performing differently. So far, the evidence that such a moment has arrived is pretty thin. It looks like Abe and Kuroda still have time. We are already long Japanese equities and short yen; investors who aren’t yet similarly positioned can take this opportunity to get in at better prices. The expectations game is always hard to play, but the risk/reward for the BoJ meeting still seems tilted toward the possibility that Kuroda may “over-deliver” and surprise markets. If Kuroda does disappoint, the next-best approach will be to harvest that still-rich equity and dollar/yen upside skew.
Source: “Is Haruhiko Kuroda Japan’s Mario Draghi?” Bloomberg, April 1, 2013