Dollar/yen implied volatility fell last week ahead of President Bush's visit to Asia. Bush, who started a week-long visit to Asia on Thursday, is expected to make a speech regarding the strength of the dollar versus the yen. Traders predict this will result in a stronger yen, but were not trading around the likely outcome of the speech. Spot traded at JPY109.4 last Wednesday, compared with JPY109.6 the week before.
One-month implied vol hit 11.52% last Wednesday, compared with 11.97% the week before. Trading has remained slow since the major move in spot and volatility that was provoked by the Group of Seven meeting late last month (DW, 9/28).
Jim Kamphoefner, foreign exchange options strategist at Bank of America in San Francisco, agreed that even in spite of strong economic numbers being released trading has remained quiet and there is little speculation on upcoming data. One-month and one-year 25-delta risk reversals remained in favor of yen calls/dollar puts. Because demand is picking up for long-dated yen calls/dollar puts the risk reversals is likely to move further in favor of yen calls. It is possible that the dollar will continue its fall against the yen, which will see volatility spike in all dollar currency pairs,
he said.
USD/JPY Spot One-Month Implied Volatility
