(Bloomberg) -- The recent increase in yen volatility is set to climb further as a summer time slump in liquidity amplifies the impact of uncertainty over the Bank of Japan’s next policy move.
Bid-ask spreads for the dollar-yen exchange rate outside Tokyo trading hours have widened recently and converged with those onshore. The currency’s realized volatility has reached the highest level in two months as the risk of a BOJ interest-rate hike spurred unwinding of carry trades.
The thinner market liquidity is “partly due to a summer holiday and ahead of the BOJ next week,” said Christopher Wong, a foreign-exchange strategist at Oversea-Chinese Banking Corp. in Singapore.
“The recent massive unwinding of yen shorts have also caught markets off-guard,” he said. This may imply volatile price action for dollar-yen, Wong added.
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