Yen Implied Volatility Curve Inversion Sends Potentially Different Signal This Time

Deep News
Jan 26

"This time is different" is one of the most perilous phrases in financial markets, yet it may precisely apply to the signals currently being emitted by USD/JPY options. The inversion of the yen's implied volatility curve portends further appreciation for the Japanese currency. Moreover, this time, following the unexpected inquiry by the New York Fed regarding the yen's exchange rate, this trend could potentially persist. Forex traders are acutely aware of the implications of U.S. intervention, a circumstance that has been exceedingly rare over the past two decades. The last instance of a similar inversion occurred around Liberation Holiday last April. However, the USD/JPY decline at that time was largely reversed by mid-May, with the exchange rate strengthening consistently in the subsequent months. This time, as investors unwind massive short yen positions built up over months, USD/JPY volatility appears poised to remain elevated for a more extended duration.

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