Standard Chartered and BNP Paribas have separately started recommending zero-cost dollar/yen digital strategies, in light of the expected repatriation of funds to Japan as the country's year-end approaches.
Standard Chartered is pitching a double no-touch option set at JPY127.5 and JPY137.5 to foreign companies with yen exposure, allowing the corporates to purchase dollars at JPY129.50 instead of at the JPY132.40 three-month forward rate. "The enhanced rate is only valid if spot stays within the trigger range," noted Claudio Piron, head of foreign exchange strategy at Standard Chartered in Singapore. If spot falls outside the range the client receives dollars at JPY133, which is less favorable than the forward rate.
BNP Paribas has been marketing a similar digital strategy to clients, though with a wider range. This allows spot greater room to move between barriers. "[StanChart has] got a good strategy, although we've been recommending a strategy with a wider range," said Thio Chin Loo, currency analyst at BNP in Singapore. The firm has been talking with corporates about a three-month digital strategy, in which clients enter a double no-touch option set at JPY129 and JPY142. The clients win if spot stays within the JPY129 to JPY142 range, as they receive dollars at JPY127.5. If it falls outside the range the client receives dollars at JPY133.
Standard Chartered's Piron said that while the firm forecasts the yen to weaken to JPY137 in the next three months, there is also the possibility that the yen could strengthen due to the repatriation flows. Adding that even in the case of the market strengthening, JPY130, the client would still benefit from the strategy. "In March the yen could strengthen as firms look to window dress for the end of the year," Thio noted, adding that while that is a concern it is unlikely that it will hit below JPY129 level.
