Japan s day traders are making record bullish bets on their home currency, just as the world turns against it.
Retail investor net-long aggregate positions in the currency climbed to 258 billion $2.1 billion - an all-time high as the yen slumped to a six-year low against the dollar last week, according to a Bloomberg analysis of Tokyo Financial Exchange Inc. data from 2006 to a six-year low. The data shows that mom- and pop traders have traditionally held net-short positions against the Japanese currency, as they seek higher yields abroad than the near zero at home.
The yen has been the worst performing Group-of- 10 currency this year, falling nearly 6% against the dollar on a widening yield gap with U.S. Treasuries. Soaring oil prices have put pressure on Japan as a net importer. While its fall may have spurred some contrarian bets, the war in Ukraine, the rise in inflation and the Bank of Japan's persistently dovish stance all complicate the outlook of the yen.
Valentin Marinov, head of G 10 research and strategy at Credit Agricole CIB in London, said that FX carry trades have become less appealing for retail investors because of the latest bout of FX market volatility. This could suggest that these investors could sell yen versus higher-yielding currencies once the FX volatility and the yen undervaluation have abated. There are currently a very large number of foreign-currency transactions and telephone lines crowded because of the continued decline in the yen in the foreign exchange market.
Retail margin trades are a big part of Japan's currency market, accounting for 78% of Tokyo foreign-exchange transactions last year, according to the latest report from an industry body.
Margin traders net bullish bets stand in contrast to bearish calls from strategists such as Societete Generale SA s Albert Edwards, who said the yen may fall to 150 per dollar. It would be the lowest since August 1990, 18% below the 122.44 level the currency reached in Tokyo trading Friday.
Data from the Commodity Futures Trading Commission shows that institutional traders have held net short positions in the yen for about a year.
Retail traders have backfired on them in the past. They held bullish bets on the Turkish lira last October, just before the currency slumped more than 30% in the following two months.
The investors have stuck to that trade, with long lira positions still the most popular among the currency pairs studied by Bloomberg. The Japanese currency rebounded by as much as 1% in Asian trading Friday amid a broad dollar decline. Haruhiko Kuroda stated that a weaker yen remains positive for the economy and policymakers would stick with easing measures, but he said he is watching currency moves carefully.
The Japanese retail investors are finely tuned to the global macro backdrop and the tensions within the BOJ, said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. As the global shift in policy gets underway, the yen positions are a reflection of investors safeguarding and hedging their positions offshore.