One-month implied volatility jumped to 9.78% last Wednesday, having fallen to 9.16% the Friday before. The jump coincided with the strengthening of the U.S. dollar against the Japanese currency, part of a more general trend of dollar strengthening against all the major currencies, said a New York-based trader. The dollar changed hands in the spot market last Wednesday at JPY111.68, down from JPY109.52 seven days before. In spite of this move the currency pair continues to look range bound in the short term, he added.
As the market has recently been biased to long yen puts/dollar calls, there was more interest last week to sell yen puts, said the trader. Several unusually large yen trades have also been executed over recent weeks, which in some cases have enhanced liquidity in longer-dated yen option trades. For example a large 10-year yen/euro trade printed last week, the trader said. Two huge dollar/yen one-touch digital options, with a combined payout of over USD30 million and strikes of JPY140 and JPY130 respectively, were also purchased in the middle of the month. These options, which reportedly had only one buyer each, had tenors of three-years.
Steven Englander, chief foreign exchange strategist for the Americas at Barclays Capital in New York, predicts the yen will gain back its ground against the greenback. The market has been overall short the U.S. dollar. Recent dollar strengthening across the board was influenced by the soft equity market, rising oil prices and disappointing economic data. The Yen is expected to rebound from these influences to reach JPY108 over the next three months and JPY100 in the next year, he predicted.
USD/JPY Spot & One-Month Implied Volatility
