The cost of one-month dollar/yen options rose at the beginning of last week as the yen strengthened against the dollar to JPY117. Implied volatility rose to 12% on Monday, up from 10% the previous Friday, in reaction to the weakening dollar. There was strong customer interest for buying dollar puts/yen calls in a variety of maturities, with strikes in the range of JPY112-115, traders said. Implied vol had begun to rise the previous week as the yen strengthened from JPY120.5 early in the week.
Dollar/yen levels stayed at the JPY117 level until Thursday, when the currency pair pushed through JPY117, traders said. Rob Hayward, senior foreign exchange strategist at ABN AMRO in London, expects the dollar to continue to weaken to JPY115.50, its low last year. He does not expect the Bank of Japan will let the yen strengthen further than that because there are already concerns that exports will be damaged by the strong yen.
The market was expecting an intervention last month from Zembei Mizoguchi, the new vice minister of finance at the central bank since four out of the five last vice ministers have intervened in the level of the yen within a month of appointment (DW, 1/20). "People had been hoping the new minister would be radical, but he seems pretty conservative," Hayward said, adding that a lot of investors are likely to have short yen positions they need to cover.
USD/JPY Spot & One-Month Implied Volatility
