Demand for dollar/yen double-no-touch options increased last week as the currency pairing remained rangebound. Typical barriers on the trade were set at JPY130-135 with maturities of two weeks to one month, with sizes between USD5-10 million, according to one trader who saw at least 10 buyers. "The Bank of Japan drew a line in the sand," he said, regarding the goal of Japanese officials to keep the yen from appreciating. Spot was JPY129.06 Wednesday.
Paul Mackel, currency strategist at Dresdner Kleinwort Wasserstein, said he saw double-no-touch trades in a slightly wider range of JPY128-134 in one- and three-month structures. He explained that the buyers of the structure would find that range attractive because it is the currency's most recent trading range. Mackel added that the negative comments from Japanese officials regarding the yen dropping through the JPY130 floor will keep the currency above the floor.
Concerning the top of the double-no-touch range, buyers are expecting that some of the improvement in the Japanese export sector and increasing optimism about its economic recovery will keep the currency below JPY134, Mackel said. He added, however, that Dresdner's view is that there is no real reason why the yen should strengthen now--that although there has been some economic recovery, there is still 90% of the economy which needs to see improvement.
