BLBG: Yen Options Show Traders Are Most Bearish Since February 2007
By Hiroko Komiya
March 15 (Bloomberg) -- Options showed traders are the most bearish on the yen in more than three years as speculation increases the Bank of Japan will ease credit as other central banks drain funds from the monetary system.
The dollar’s three-month 25-delta risk-reversal rate against the yen narrowed to minus 0.78 percent at the end of last week, the smallest negative spread since February 2007. That shows a shrinking premium for dollar puts that allow sales, over dollar calls that give holders the right to buy.
“Traders are buying dollar call options for terms of one or two to six months,” said Mitsuru Sahara, chief manager at the currency derivatives department at Bank of Tokyo-Mitsubishi UFJ Ltd. “That signals traders expect the yen to weaken.”
The BOJ may seek at a policy meeting on March 16-17 to counter a contraction in its balance sheet caused by the month- end expiration of an emergency-credit program. It may expand a 10 trillion yen ($110 billion) fund for loans to banks, said two central bank officials who spoke on condition of anonymity.
The cost of borrowing in yen for three months between banks fell below the dollar rate this month for the first time since August, increasing the appeal of the yen as a funding currency for leveraged purchases of assets.
“The yen is again cementing its position as the currency for carry trades on expectations yen interest rates will stay low for a longer period than dollar borrowing costs,” Sahara said. “U.S. longer-term yields are gradually rising with good economic indicators beginning to come out.”
Demand for Japan’s currency also waned after Finance Minister Naoto Kan signaled the government is against further gains in the yen, according to Sahara. Intervention is always an option for the Japanese government if currency movements are abrupt, Kan said in parliament in Tokyo on March 12.
The yen traded at 90.61 versus the dollar as of 2:04 p.m. in Tokyo from 90.56 on March 12 in New York. The currency advanced to 84.83 on Nov. 27, the strongest since July 1995.
To contact the reporter on this story: Hiroko Komiya in Tokyo at hkomiya1@bloomberg.net
