Bets on stronger yen hit nearly 6-year high

(Adds Deutsche Bank research on yen, graphic on scale of move)

By Patrick Graham

LONDON, Feb 9 (Reuters) - Currency markets upped bets on gains for the yen in the next month to their highest in almost six years on Tuesday, a reflection of the scale of market stress which has sent investors scuttling for the traditional security of Japan.

One-month risk reversals in the yen until late last year indicated a strong bias towards more gains for the dollar. But in a slide since October, those have now flipped to their weakest since May 2010. http://tmsnrt.rs/1SFWRD6

The equivalents in 3-month and 6-month contracts - used by big global importers, exporters and speculators to hedge currency exposure - showed the biggest bias toward a stronger yen since late 2011.

Another surge on Tuesday drove the yen's spot exchange rate to its highest since late 2014, as much as 6 percent stronger than lows hit after the Bank of Japan shocked markets by cutting its interest rates into negative territory two weeks ago

Those moves drove implied volatility of the currency to its highest in more than two years on Tuesday. But the fallout, and a renewed round of doubts over the solidity of banks, have also led many to turn more positive on the longer term outlook for the yen.

"As much by default, the yen in current circumstances remains the most likely currency to benefit from a dollar pause," Deutsche Bank (Other OTC: DBAGF - news) macro strategist Alan Ruskin said in a note, comparing the outlook to the start of an extreme run higher for the currency after the Asian and Russian financial crises in 1998.

At that point, in just over a year the yen went from 145 to 101 yen per dollar. (Reporting by Patrick Graham, graphic by Nigel Stephenson, editing by Anirban Nag and Mark Trevelyan)