Societe Generale’s Kit Juckes remarked the other day that:
Short yen really has been the trade that keeps on giving for old-fashioned blue-blooded hedges. FX vol up and (nearly) all down to the yen.
He isn’t wrong.
The decline in currency volatility, shown here with Deutsche Bank’s CVIX index (G10 3M FX implied volatility, in black), was relentless throughout 2012. And even though the index has rallied somewhat in 2013, once you factor in the huge increase in yen volatility (red), overall G10 vol still looks moribund. USDJPY accounts for more than 20% of the CVIX index.