In the past few months, there has been a remarkably improvement in investor’s sentiment regarding the USDJPY exchange rate. Back in November of 2008, USDJPY call options with 1-month to maturity were being bid nearly 10 percent lower than similar puts as traders priced in the negative effects of the Lehman Brothers bankruptcy. However, nearly 18 months after those extreme volatility days, USDJPY call options with 1-month to maturity are being bid only 0.9 percent lower than similar puts. Among other things, this shift in options premiums means that investor’s are less worry about hedging for USDJPY downside and we may see the US dollar rallying against the yen once the Federal Reserve starts increasing the benchmark Fed Funds rate. I remain long USDJPY since 86 and I’m targeting 100.
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