TOKYO -- Currency traders are hedging against a potential rise in the yen via options contracts, seeing there is now a higher chance of the Bank of Japan changing monetary policy, with the reappointment of Gov. Haruhiko Kuroda becoming less certain after the Tokyo assembly election.
Garnering particular attention is the risk reversal indicator, which reveals currency traders' future expectations. It is measured as the amount of yen puts minus yen calls in options trading, with a lower readout indicating higher concern that the currency will strengthen. This indicator on one-year options has dropped more sharply than on three-month ones since this month's Tokyo assembly elections, in which Prime Minister Shinzo Abe's ruling Liberal Democratic Party suffered a bitter defeat.
