A small movement in U.S. dollar/yen volatility last week was accentuated by a decline in dollar vol versus other major currencies in a generally quiet market. One-month implied volatility on the pair reached 9% last Thursday for the first time in two weeks. The dollar dropped against the yen to JPY109.50 last week, from a high of JPY111.16 the week before. The options market was quiet because there was no significant data published last week and little movement in the spot market, said traders.
Few investors were taking directional positions on dollar/yen last week, but one official said a large player had bought one- and two-year dollar calls struck at JPY115. Market players across the board were punting on an up tick in volatility on the dollar/yen currency pair by buying at-the-money straddles. Some of these trades had maturities out to two years, reported traders, but there was a lot of interest in buying three-month at-the-money straddles to take advantage of volatility in the currency pair over the U.S. election period. Straddles were also sold last week to cover Sept. 3, when U.S. non-farm payrolls are next published.
Hans Redeker, currency strategist at BNP Paribas in London, noted dollar/yen is seen as negatively correlated to the price of oil, so interest in the pair could be from players who view the decline of the dollar against the yen as a sign oil prices might turn. Redeker said the pair is close to breaking significant barriers at JPY109.20. "If 109.20 is broken we could see a significant fall in the [dollar's] strength," he noted.
