Currency traders wary of shorting yen on risk BOJ to disappoint

Bloomberg

Some of the world’s biggest currency traders are betting that the yen can withstand almost anything Haruhiko Kuroda comes up with on Friday.
Insight Investment Management Ltd., a unit of Bank of New York Mellon Corp., is “close to flat” on the yen. JPMorgan Chase & Co. says the currency could surge toward 102 per dollar on Friday, from 104.40 at 2:11 p.m. in Tokyo Tuesday, if the Bank of Japan fails to meet market expectations, and extend its gain to 100 in the next few months. The yen, Asia’s worst performer this month, is still stronger than when the BOJ unexpectedly expanded stimulus in October 2014.
Almost 80 percent of analysts surveyed by Bloomberg forecast Governor Kuroda and his board will expand the record program at their two-day meeting starting Thursday. Traders say policy makers will need to surpass such expectations in order to weaken the currency as it becomes less sensitive to BOJ’s easing, which included the adoption of a negative deposit rate this year.

‘Higher Hurdle’
“There’s quite a lot now priced into expectations, so the hurdle is certainly a lot higher than it was a few weeks ago in terms of something that needs to be delivered,” said Paul Lambert, the London-based head of currencies at Insight Investment, which which manages more than $520 billion. “There’s a lot less value getting long in dollar-yen here than there was near 100 because there’s a lot more priced in.”
One-week implied volatility in the yen, a measure of exchange-rate swings, surged to 25.3 percent on July 22, the highest close in 7 1/2 years. Speculation about the possibility for some radical new steps emerged earlier this month, when Kuroda and Prime Minister Shinzo Abe held separate meetings with former Federal Reserve Chairman Ben S. Bernanke, who once suggested that a central bank could overcome deflation by printing money as a last resort, which would be the equivalent of dropping money from a helicopter in the sky.