2023-07-23 23:21:00
In the spot trading of the Tokyo foreign exchange marketpresenceJapanese retail investors are inflating their purchases of volatile emerging market currencies. This is despite the heightened risk of domestic monetary policy changes this year.
A Bloomberg analysis of data from the Tokyo Financial Exchange shows that individual investors’ net long positions in four emerging-market currencies reached 147 billion yen (regarding $1 billion) in July, the highest in more than two years.
per day$7.5 trillionThe scale is modest compared to the world’s forex trading, but it shows that the popularity of the carry trade remains unchanged despite the prospect of rising interest rates in Japan. The carry trade of selling a low-yen yen and buying a high-yielding currency often causes sharp movements in the currency market when the market moves in the opposite direction, forcing investors to liquidate their holdings.
Japan Retail Investors Boost EM Currency Longs
Sources: Bloomberg, Tokyo Financial Exchange
As inflation progresses at home and abroad, the pressure to correct the yield curve control (long-term interest rate control, YCC) policy of the Bank of Japan is increasing. Economists expect the status quo to continue as the chances of a policy change are waning at the monetary policy meeting this week on the 27th and 28th. However, many economists expect a policy revision in September or October, and any move by the BOJ would likely lead to higher interest rates in Japan and a stronger yen.
Tetsuya Yamaguchi, chief technical analyst at Fujitomi Securities Co., Ltd., said the policy revision would likely cause individuals to sell foreign currencies to cut losses, but he sees it as temporary. Some investors see this as an opportunity to buy more foreign currency, he said, adding that individuals who invest in bank deposits will continue to look for high-yield investments.
Net longs in the Mexican peso, the most popular currency among individuals in data published by the Tokyo Financial Exchange, reached their highest level this month since 2017, when data are available.
The South African rand, the Polish zloty and the Turkish lira have also been analyzed by Bloomberg, and trading a long position in these four currencies combined with a short position in the yen has returned regarding 35% since the end of 2021. Twenty-nine percentage points of that is due to rising interest rates.
Mexican Peso Proves Popular Among Japan Retail Accounts
Japanese individual investors’ net long positions
Sources: Bloomberg, Tokyo Financial Exchange
Toru Nishihama, chief economist at the Dai-ichi Life Research Institute, said, “Japan’s real income continues to decline due to inflation, and when it comes to how to increase it, we have no choice but to look outside.”
According to the results of a survey released by the Financial Futures Association in October last year, the total external circulation volume of foreign exchange margin trading accounted for regarding 88% of the spot trading value in the Tokyo foreign exchange market.The Bank of Japan, citing data from the Bank for International Settlements (BIS), recently said Japanese account for 28% of the world’s retail investor-related transactions.reportpublished in
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