Deutsche Bank is recommending clients purchase one-year at-the-money U.S. dollar calls/yen puts to take advantage of low volatilities caused by the Bank of Japan's intervention to create a dollar floor around JPY119 and the belief in a U.S. recovery next year, said Ken Landon, senior currency strategist at Deutsche Bank in Tokyo. "It's a pretty straightforward strategy-a lot of people like that," he added, "anyone who wants to take a directional view would be interested."
Now is a good time to enter the trade, Landon noted, adding "I don't see vols going any lower." At these levels there is good value for a one-year time frame where an investor can take profits at any time during the year by unwinding the position. One-year implied vol was around 10.4% Thursday.
Landon continued that Deutsche Bank's one-year forecast for the currency pairing is that it would head to JPY140. "We're one of the most bullish houses on the street [for dollar strengthening over yen]," Landon added. The factors he attributes to the yen appreciating are a V-shaped recovery in the U.S. next year, assisted by Federal Reserve interest-rate cuts, while Japan's economy will remain weak. "I don't see anything benefiting [Japan's] economy," he continued. Last Thursday spot was at JPY120.85. He declined to comment on the premium for the trade.