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
06:23p SYSTEM RESEARCH : Study Results from University of California Broaden Understanding of Neuroscience (Dynamic Modulation of Myelination in Response to Visual Stimuli...
06:23p MERITAGE HOMES : beats 2Q profit forecasts
06:22p ASSYSTEM : First-half 2016 consolidated revenue
06:22p MINISTRY OF AGRICULTURE OF SASKATCHEWAN : July 28, 2016 Crop Report for the Period July 19 to 25, 2016
06:22p TRAVELPORT WORLDWIDE : boosts its UK management team
06:22p NATIXIS : Second Quarter 2016 Results - Slideshow
06:22p NATIXIS : Free share allocation for the Chief Executive Officer of Natixis Board of Directors' decision of July 28, 2016
06:22p PENDRAGON PLC : - Transaction in Own Shares
06:22p Patent Issued for Image Forming Apparatus and Drive Control of Image Bearing Member Motor (USPTO 9395657)
06:21p CHINA STATE CONST ENG : Granite Ventures Ltd Applies to Court toward Moving Baha Mar from Provisional to Formal Liquidation and the Appointment of Permanent Liquidators
Latest news
Advertisement
Hot News 
26.11%GRUBHUB : Beats Expectations, Raises 2016 Outlook; Shares Jump
22.97%ALERE : Faces Criminal Probe Over Billing -- WSJ
-19.17%GNC : CEO Leaves as It Suspends Guidance
13.52%ROLLS ROYCE : turnaround starts to take hold
17.75%TEMPUR SEALY : Results Top Expectations
Most Read News
07/27 FULTON COUNTY GA : S&P Raises Fulton County’s Debt Rating to AA+
12:16p Global stocks fall on poor company results, dollar slides
08:07a Brexit shockwaves hit British jobs, consumer confidence
11:34a Oracle to buy NetSuite for $9.3 billion to gain cloud computing clout
10:22a Avnet's 691 million pounds offer for Premier Farnell tops Daetwyler's bid
Most recommended articles
12:21pDJKERING : 1st-Half Performance Improves on Strong Yves Saint Laurent Revenue
12:20p AstraZeneca a bid target again? CEO says someone may spot value
12:19p Fed caution hits dollar as Japan anticipation builds
12:16p Global stocks fall on poor company results, dollar slides
12:16pDJZIMMER BIOMET : Boosts Bottom End of Earnings Forecast as Loss Narrows