Dollar/yen one-month implied volatility jumped to 13.4% on Wednesday from 11.25% the previous Friday after the dollar appreciated to JPY118 and traders purchased dollar calls.
One London-based trader said hedge funds and proprietary traders bought one- and two-month out-of-the-money dollar calls/yen puts. The out-of-the-money options had strikes around the JPY120 mark and notional sizes of approximately USD20-50 million. The greenback appreciated to JPY118 against the dollar from JPY117 10 days ago.
Jesper Dannesboe, chief foreign exchange strategist at Dresdner Kleinwort Wasserstein in London, said the yen slipped against the dollar last week because investors were taking money out of the Japanese stock market.
The yen has been falling against the dollar since the start of December because of long-term concerns about the Japanese economy. Shahab Jalinoos, foreign exchange strategist at UBS Warburg in London, said the Japanese economy is in worse shape than the U.S. Government officials have stated support for a weak currency to export the country out of trouble. UBS Warburg's three-month forecast for dollar/yen is JPY122.50.
