The return of 'Mrs Watanabe'

Here is my most recent story.
If you want to know how 'Mrs Watanabe' is doing in the currency markets, just go to the following sites. There are data from the Tokyo Financial Exchange (TFX). Cheers, Kosuke

Historical data on on Exchange Forex Margin Contracts (Click 365)

Month-to-date data on Exchange Forex Margin Contracts (Click 365)

Foreign Exchange Margin Trading Market in Japan 2008 published by Yano Research Institute.

Cheers, Kosuke

The return of 'Mrs Watanabe'
By Kosuke Takahashi

TOKYO - Mrs Watanabe, the market's metaphor for Japan's housewife yen speculators, has come back to life. A star of the yen trade's golden days from 2000 until mid-2007, she suffered big losses in the financial turmoil over the past few years. But like a phoenix - or a zombie - she is rising from the ashes as market stability increases risk appetites and yen-selling positions pile up.

Japan's housewives, pensioners and businessmen are behind accelerated sales of the Japanese currency, betting it will resume its decline against high-yield currencies. Lower volatility, which implies smaller exchange-rate fluctuation risk, may encourage them to take advantage of the Bank of Japan's ultra-low overnight lending rate at 0.1% to borrow yen in so-called carry trades to buy assets in Australia, New Zealand, and Europe to increase returns on 1,410 trillion yen ($14.7 trillion) in financial assets.

Yen sales by Japanese individual investors against the Australian and New Zealand dollars rose to their highest in almost nine months this week, according to data from the Tokyo Financial Exchange (TFX). Net long positions held by individual investors on the Southern Hemisphere currencies reached 127,752 contracts on June 23, the highest since October 3, the data from Japan's largest financial futures market showed. Long positions are bets that a currency will rise.

Most notably, net long positions on the Australian dollar against the yen rose to 97,643 contracts among retail investors on June 23, the highest since August 29, returning to record-high levels similar to those before the collapse of Lehman Brothers in September 2008, data also showed.

The contracts are denominated in 10,000 units of the foreign currency. Account deposits at TFX constitute about 10% of all foreign-exchange margin trading in Japan and almost 5% of the total trading volume, a spokesman at the exchange said.

"Behind those increased long positions is the improvement of Japanese investors' risk appetite," Yuki Sakasai, a Tokyo-based currency strategist at Barclays Capital Plc, told Asia Times Online. "The commodity market saw some pullback lately, pushing down commodity currencies such as the Australian dollar. This gave them good opportunities to buy those currencies on dips."

The yen traded at 77.30 against Australia's currency at noon in Tokyo on Friday and was at 61.75 per New Zealand's dollar. Against the Australian dollar, the Japanese currency declined to a 16-year low of 107.87 yen on October 31, 2007, then rose to 55.13 on Oct. 24, 2008, the strongest since Australia's currency started trading freely in 1983. The yen has been the worst-performing major currency this year, as financial markets stabilized.

Benchmark interest rates are 3% in Australia and 2.5% in New Zealand, compared with 0.1% in Japan, attracting investors to the South Pacific nations' higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

In Japan, individuals have opened 1.23 million margin trading accounts at brokerages that lend money for currency bets as of March 2008, up 92% from a year earlier, according to Tokyo-based Yano Research Institute Ltd, the publisher of an annual report on the business. The number may have exceeded 1.79 million by the end of March 2009, said Kaz Shirakura, a senior researcher at the institute.

Account balances totaled 696.4 billion yen, up 13.5% from a year earlier, Shirakura said. Those balances may have reached 906 billion yen by the end of March 2009, he also said.

"Japanese retail investors used to be very good at contrarian trading methods, by which they buy foreign currencies on dips," Shirakura said. "But now they have become very good at swing trading in a very short term. They earn short swing profits by buying and selling foreign currencies, just like professional traders. Mrs Watanabe has become much cleverer and smarter after the subprime debacle."

The value of financial assets held by Japanese households shrank to its lowest in five years as of March 2009, with the turmoil taking its toll on stock and mutual fund holdings, found a June 17 Bank of Japan survey. Japanese households' financial assets fell 3.7% to 1,410 trillion yen from the previous year, the Bank of Japan's flow of funds survey showed. It was the second straight year of decline.

Kosuke Takahashi is a Tokyo-based journalist.

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