Bullish USD/JPY plays have a way of acting like an exploding cigar. Someone hands you a stogie, you figure “why not?”

But what if there were a fairly low risk way to play? How about a slightly out-of-the money 1 month call in USD/JPY? Volatility is cheap at the moment, as you would expect given the range-bound market.

Why be bullish USD/JPY, you ask? Two reasons.

  1. The Japanese have been actively talking about the idea of intervening to buy foreign bonds in order to weaken the JPY. What bonds would they buy? The most liquid: Treasuries and German bunds. Maybe a smattering of UK Gilts.
  2. Last year the MOF spent $100 bln to intervene in USD/JPY at the end of October which corresponds with the end of the fiscal-year in Japan. They could repeat the process this year to allow Japanese investors to revalue their books with a weaker JPY, at least temporarily.

Will either of these potential actions cause a sustained weakening in the JPY? Probably not. Picking bottoms in USD/JPY has left legions of traders only with smelly fingers. But for a low risk lottery ticket trade, buying a 1 month USD/JPY call on the cheap could be a way to play.