One-month implied volatility for U.S. dollar/yen options fell 50 basis points, as investors slowed their activity in the options market in the wake of the coming holiday weekend. One-month implied vol fell to 10.0% by Wednesday afternoon, down from a high of about 10.5% the previous week. FX options traders in New York reported diminished trades in the market as spot moved little throughout the week. "Spot has barely moved. The holiday weekend is keeping everyone out," said one trader. Common trades saw investors looking to buy three-month to six-month dollar calls/yen puts with strikes between JPY150-155, while spot hovered around JPY132.52. A week prior spot was around JPY131.25.
Japanese investors preparing for the end of their fiscal year on March 31 helped to further bolster the coming holiday slowdown. "Investors in Japan have just about stopped their asset selling, which really helped to strengthen the yen during the middle of March. The correction in the market is over" another trader said.
Jim McCormick, currency strategist at Lehman Brothers in New York, predicted the yen would further weaken in the coming months. "The yen story is a tug of war. Essentially you have a very negative domestic picture supported by a very easy monetary policy with risks that it could get easier," he said. He added that on the other side of the tug of war, the yen has a tendency to be highly susceptible to global swings. "Right now you have spot around JPY130-JPY135. If the range is going to break it will be on the upside" McCormick added.
