CME reports four days of record open interest in yen

The Chicago Mercantile Exchange reported record open interest in yen options contracts for four consecutive days this week, signalling investor expectations of further yen weakness.

On January 28, there was open interest on a record 180,443 yen options contracts with a notional value of $24.9 billion, but was surpassed daily to hit 191,583 with a notional value of $26.22 billion by January 31 (see table). The yen has continued to weaken versus the US dollar, reaching 92.27 on February 1, its lowest level since mid-2010. 

"Japan's economy has had an active start to 2013. Its main stock index, the Nikkei, is up 28% since mid-November and its currency is trading at its lowest value in years," says Will Patrick, senior director for FX products at CME Group in London. "The latter is largely the effect of a bond-buying programme from the Bank of Japan [BoJ] set in motion by new prime minister Shinzo Abe."

CME Group chief economist Blu Putnam added: "Market participants clearly believe the new prime minister and his finance minister can convince reluctant technocrats within the BoJ and the Ministry of Finance to go along with the implied quantitative easing and foreign intervention needed to promote a weaker yen.

"It helps that the new prime minister will also get to appoint a new head of the BoJ in the spring."

He said from a historical or chartist perspective, in developing scenarios of possible yen moves, it is possible for the yen to reach 140 as seen in August 1998.