Dealing with yen downside risk

BACKGROUND: Dollar/yen has been trading sideways within a seven-yen range during the first seven months of 2003. The yen has managed to avoid the dollar weakness experienced versus the European currencies because the Bank of Japan (BoJ) has intervened massively. However, if the central bank’s ongoing covert operations were to either stop because of politics or be overwhelmed by the market supply, the dollar/yen would collapse.

Problem: How would an FX trader, who expects the BoJ intervention

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