Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
Settings
Settings
Dynamic quotes 

4-Traders Homepage  >  News

News

Latest NewsCompaniesMarketsEconomy & ForexCommoditiesInterest RatesHot NewsMost Read NewsRecomm.Business LeadersCalendar 

USD/JPY: Bullish strategy

share with twitter share with LinkedIn share with facebook
share via e-mail
0
10/16/2012 | 12:00pm CEST

It has been over 20 years since Japan is plunged into deflation, monetary phenomenon that is characterized by a continuous decline in prices. Companies are no longer investing and consumption slow down, consumers constantly pushing their purchases in order to get cheaper prices. This situation inevitably leads to a slowdown in the Japanese economy that fails to pick up, despite massive injections of liquidity by the Central bank of Japan.

The BoJ under its quantitative easing should inject nearly 20,000 billion yen (about 255 billion dollars) by the end of the year. However, Japanese banks have substantial stocks of cash due to a lack of demand for credit.
 
Japan is further penalized by a strong yen that prevents a resumption of exports of the archipelago. They accounted for 17.6% of GDP in 2007 against only 11% expected in 2012.
 
Why so strong currency with a high debt ratio?

With a debt that will reach more than 220% of GDP in 2013, we are entitled to ask why the yen is considered as a safe haven. The first thing to know is that the strength of a currency is not measured by the growth potential of the country, but the stability of the currency in foreign exchange. In addition, the japanese debt is owned by 92% by domestic actors (banks, insurance companies and individuals) and 8% by foreign capital. In comparison, European debt is owned by more than 50% of non-European investors.

This is why, despite its amount of debt, Japan finance it at a rate between 0 and 1%. Residents repay the debt (through taxes) and are both creditors by investing their savings in the debt. Thus, Japan retains funding capacity and stability in yen. Thus, it is considered a safe haven in times of risk aversion and traders buy the yen.

In this context, the Japanese central bank never ends to provide liquidity in order to halt the spiral of rising yen against the US dollar hit by the economic slump in the United States. The downward trend of parity has been observed for more than 10 years. It is clear that these actions have no effect on the local currency. Various policy statements from the Empire of the Rising Sun suggest that the BoJ may soon resort to the method used by the Swiss National Bank, establishing a floor (between JPY 83 and 85) on  the currency against the US dollar and thus, to support exports for the japanese companies
 
In this context, we decided to set up a strategy of " bullish channel" which involves to sell a put option in order to finance the purchase of a call option.

Strategy
 
Purchase of a call option “out-of-the-money” with the sell of a put option “out-of- the-money”. Besides the premium should be the same for a “cash flat” strategy.
 
For a maturity of  3 months :
 

  • Strategy is winning in case of rapid increase of parity
  • This strategy is flat in case of stability or slight decline
  • Strategy is losing if the parity decline. In this case, you will have to buy the USD/JPY at the strike price (more expensive than the spot price)


 


In the latter case, there is an outperformance of the option strategy compared to a spot purchase at the moment.
 
This is an option strategy which allows to speculate without exposure to the time value, an increase of USD/JPY, within three months with much lower risk to the spot purchase.

© 4-traders.com 2012
share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news
Date Title
12:36p SEPT 29 : Misr Chemical Industries' BoD to review July/August results
12:36p ARAB FINANCIAL INVESTMENT : FSA nods AlWehda to publish purchasing offer of Atqa at LE11/ share
12:36p TODAY : Memphis Pharmaceuticals' BoD to review July/August results
12:36p TODAY : Misr Beni Suef Cement last cash dividend date
12:36p TODAY : Golden Textiles last cash dividends date
12:36p ARAB FINANCIAL INVESTMENT : Luxury Closet raises $7.8 m Series B financing led by Wamda, MEVP
12:36p ARAB FINANCIAL INVESTMENT : Sodic to offer pack of projects before 2016-end, eyes Red Sea area
12:36p TOMORROW : Memphis Pharmaceuticals' BoD to review July/August results
12:36p W RESOURCES : Commences Drilling For Gold At Sao Martinho In Portugal
12:36p YIT'S RENEWED STRATEGY : Urban development as the engine of growth
Latest news
Advertisement
Hot News 
8.08%LANXESS : to Acquire Chemtura for $2.7 Billion
-1.55%AHEAD OF THE TAPE : Don't Abandon Carnival's Ship -- WSJ
7.10%Lamprell Secures $90 Million Vessel Upgrade Contract
-2.02%On the Majestic Maersk, mega-ship dreams obscure cloudy future for shipping
-0.51%ChemChina seeks EU okay for Syngenta deal, decision due October 28
Most Read News
04:54a LOTTE CHEMICAL : South Korea prosecutors seek arrest warrant for Lotte Group chairman
04:33a Germany's Lanxess to buy U.S. chemical firm Chemtura for $2.7 billion
04:11a Discounter Aldi plans 300 million pounds UK store revamp
04:25aDJStocks Down as Banks, Energy Companies Fall
09/25DJLANXESS : to Acquire Chemtura for $2.7 Billion
Most recommended articles
06:32aDJStocks Down as Banks, Energy Companies Fall -- Update
06:26a NO REASON TO SPECULATE ABOUT STATE AID FOR DEUTSCHE BANK : Merkel spokesman
06:15a ChemChina seeks EU okay for Syngenta deal, decision due October 28
06:10a UK mortgage approvals hit 19-month low, more weakness seen
06:09a TAKATA'S SEARCH FOR A SAVIOR COULD DRAG INTO NEXT YEAR : sources