The yen's continuing climb against the dollar, moving to JPY103.50 from JPY103 last Friday, led investors to play the currency pair in two ways, an fx options trader said.
Options with a one-year maturity are being bid higher because most traders foresee a long-term dollar weakness. But those who think the Bank of Japan will intervene to slow the yen's appreciations have placed their bets on one-week and one-month options. Most of the option speculation has been seen in the exotic market.
The yen has broken through key barrier clusters, the trader said, explaining that he thinks the market feels the Bank of Japan won't have a strong presence anytime soon. With that, implied volatility across the curve has risen as traders speculate the dollar will continue to weaken.
"I think the dollar weakness is a strong trend and I expect that to continue," said the trader. If the Bank of Japan does jump in traders will probably sell off back-end volatility, he noted.
