All of the Japanese Yen crosses have rebounded significantly on the back of the rally in the US stock market.
Although we believe that the move in USD/JPY could extend for another 100 to 150 pips, the recovery should be short lived. According to a special report written by our Currency Analyst David Rodriguez, extremely one-sided demand for Yen options is a clear signal that traders expect the pair to fall even further over the next 3 months. Risk reversals indicate that the market currently has a 5 percentage point premium for USD/JPY puts. The last time we saw risk reversals this extreme was back in August 2007. Even though there was a 430 pip recovery after risk reversals hit current levels, the currency pair went on to drop more than 1000 pips.