Deutsche Bank entered up to USD1 billion
(notional) of two-week U.S. dollar/Japanese yen 25-delta risk
reversals Tuesday on behalf of a client, according to rival traders
in London. A Deutsche Bank trader acknowledged the bank had
executed a large customer trade where it bought upside dollar
calls/yen puts struck at JPY133.85 and sold downside dollar
puts/yen calls struck at JPY130. Spot was JPY131.5 Wednesday and
had been as much as a full yen higher the previous day. The
Deutsche Bank official declined further comment.
Traders said the transaction was entered late in
the day on Tuesday, at around 4 p.m. London time, leading to what
they described as a "messy" execution that forced volatility
higher. One-month dollar/yen implied vol began the day at 10.2% and
jumped as high as 10.85% because of the activity, according to
traders in London. "They certainly didn't choose the most liquid
time; but if the customer called at that time, the only way they
can do it is a messy way," noted one trader.
Others said the trade pays off if the yen weakens
in advance of next month's fiscal year-end in Japan, as expected.
One trader said Japanese monetary officials, who have already
expressed their view for a weaker yen, would especially like to see
that happen by Japanese year-end at the end of the month, because
that would increase the value of foreign-denominated