Sharp Yen Appreciation Swells Call Demand
Investors snapped up short-dated yen calls last week after the Japanese government edged closer to a parliamentary vote on the country's postal reform.
Investors snapped up short-dated yen calls last week after the Japanese government edged closer to a parliamentary vote on the country's postal reform. Concern the government would not be able to pass a bill to privatize the post office had been causing political unrest and dragging the yen down. Reports the bill looked set to clear a House of Councilors panel strengthened the currency against the U.S. dollar to JPY111.00 from JPY112.30 earlier in the week.
Traders said investors, in particular hedge funds, reacted by jumping on one-week to one-month yen calls. "Yen calls were most active and there is big demand for short-dated trades," noted one trader. One-month yen call options were typically striking between JPY108 and JPY111, according to an official at a U.K. firm, who also reported demand for options with maturities of less than one week. One-month implied volatility rose to 8.3% from 8% the week before. "Vol is not expensive and it is easy to put the trades in place," said one trader.
Hans Redeker, head of global fx strategy at BNP Paribas in London, said although a parliamentary vote on Japan's postal reform had been delayed because of uncertainty over obtaining a majority, the yen would likely continue to appreciate against the greenback when a decision is reached. "Investors are buying yen calls on a short-term risk and a long-term positive outlook," he said.