April 29 (Reuters) - Last week's price action in FX options was consistent with an increasing threat of official JPY intervention, while Monday's price action after that intervention was realised would suggest dealers believe it may actually work to contain excessive volatility.

FX options thrive on volatility and use implied volatility to gauge to what extent when determining a price. Benchmark USD/JPY implied volatility levels led the charge to 2024 highs last week and had held an extreme volatility premium for downside versus upside strikes for the last several weeks, despite the 34-year USD/JPY spot high.

Leading up to Monday's apparent intervention, USD/JPY implied volatility posted ever new longer term highs before coming under renewed pressure. One-week expiry peaked at 17.0 from levels around 13.0 ahead of Friday's BoJ policy hold and has now almost fully retraced that move. One-month expiry implied volatility peaked above 12.2 in Asia Monday from 9.5 before Friday's BoJ decision and has traded 10.3 since. Even 1-year expiry USD/JPY implied volatility has traded 9.6 from 10.2 in Asia.

One-month 25 delta risk reversals traded 1.85 implied volatility premium for JPY calls over puts last week, but have since almost halved that premium. Butterfly spreads are also a bellwether for FX realised volatility and one-month expiry 10 delta has traded 1.15 from 1.6 and 3-month expiry 1.3 from 1.625 so far Monday.

The extreme spread between implied volatility and its fair value realised volatility measures has been very wide and suggests further downside potential for implieds if the market truly believes the BoJ will continue to suppress volatility.

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(Richard Pace is a Reuters market analyst. The views expressed are his own)

((Richard.Pace@thomsonreuters.com))