Japan's exporters last week took advantage of a recent uptick in the euro against the yen to purchase out-of-the-money euro puts, according to traders. The euro strengthened in the spot market to JPY104.8 on Friday from lows around JPY99.85 June 1, following Ireland's recent surprise rejection of the Nice Treaty on enlargement of the European Union, said Ron Leven, currency strategist at Lehman Brothers in Tokyo. The spot market reacted positively to the news, since the Irish 'no' vote will at least delay EU expansion. In addition, recently released weak GDP numbers in Japan dragged the yen lower, he continued.
"The risk reversal is still skewed to euro puts," said Motoshi Imura, senior manager, global head of currency options at Bank of Tokyo-Mitsubishi. Much of the recent activity has been in the front-end of the vol curve, with players purchasing options with typical strikes of JPY102 and JPY103. Implied one-month euro/yen vol was at 13.65% Friday, versus historical vol levels for the same maturity of around 15%.
Traders and strategists expect euro/yen to remain range bound in the near-term, with a bias towards euro upside. Paul Meggyesi, director, fx strategy at Deutsche Bank in London, expects a modest upside bias in the coming weeks, with the spot approaching the JPY106 level.
