The price of dollar/yen options fell last week as spot remained rangebound. The currency pair traded at JPY123.5 in the spot market last Wednesday, the middle of a several-week range. One-month implied volatility stood at 9.3% last Wednesday, down from 10.25% where it had climbed in the week. The previous week spot had been trading at JPY124 and one-month implied volatility was 9.8%.
Traders said the market has almost shut down, with hedgers and speculators not putting on any positions as they sit out the holiday and bonus season. Implied vol is likely to continue to fall over the coming weeks, although the lack of market participants will result in lessened liquidity, which may cause some harsh movements, said a trader.
Bob Gay, head of fixed-income research at Commerzbank Securities in New York, predicted dollar/yen would stay in its range for the remainder of the year, but the Japanese currency would likely strengthen against the dollar over the course of next year. Between now and Christmas there will not be enough flow to affect rates and no major announcements are anticipated in the period, he noted. Japan's status as a country with a current account surplus, combined with the U.S. being in deficit, will work in the yen's favor, with spot likely to stand at JPY120 over a three month period.
