Nov 20 (Reuters) - Price action in forward looking FX options can offer clues about the perceived outlook for a currency pair as demonstrated by USD/CNH and EUR/USD on Wednesday. Price action in USD/JPY options is clearly concerned about downside, especially around the December Bank of Japan announcement, but isn't ruling out a 160.00 test, prior.

Risk reversals are an FX option contract that benefits from volatility in one direction versus the other. The benchmark 1-month expiry 25 delta contract retains a strong implied volatility premium for JPY calls over JPY puts (downside versus upside strikes). This reinforces a negative correlation between USD/JPY spot and implied volatility, with losses in the former, lifting the latter. There's also been outright demand for strikes as low as 150.00 of late.

However, USD/JPY has been trending higher since the U.S. election and has only been temporarily hurt by BoJ hike fears (pre Ueda speech Monday) and bouts of risk aversion (Russia headlines Tuesday).

USD/JPY charts are certainly bullish and while the consensus trade appears to be short USD/JPY, there's likely to be better levels at which to enter short positions. Some options traders aren't ruling out the potential to 160.00 and have been buying options that would benefit/protect them in that scenario - a level which if it were achieved, would also raise the threat of official intervention.

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

((Richard.Pace@thomsonreuters.com))