Yen Traders Are Taking Out Some Insurance on Japan's Election

(Bloomberg) -- The same political party has run Japan for all but four years since 1955. That’s not stopping some yen traders from taking out a little bit of insurance on the outcome of the looming Oct. 22 election. 

Options trading shows a noticeable gap in so-called risk reversals between two-week contracts and one-month ones, a period in which the lower-house election falls. There were similar gaps in March, when the French presidential election featured the possibility of an anti-euro candidate winning, and last October, in the run-up to the U.S. election.

The yen typically benefits from periods of international turmoil, so the March and October 2016 gaps can be explained by safe-haven betting. This time around, some currency strategists are assuming that Japan’s key opposition party, run by Tokyo Governor Yuriko Koike, would be less supportive of the weak yen produced by Abenomics -- the economic program championed by Prime Minister Shinzo Abe that’s entailed record monetary stimulus.