Japan Real Time Charts and Data

Edward Hugh is only able to update this blog from time to time, but he does run a lively Twitter account with plenty of Japan related comment. He also maintains a collection of constantly updated Japan data charts with short updates on a Storify dedicated page Is Japan Once More Back in Deflation?

Monday, June 18, 2007

Japan's retail carry trade

It seems that Claus and I have been thinking along the same lines recently, that the increase in currency trading by individuals in Japan is particularly noteworthy. One fact from the Bloomberg story that Claus pointed out is that
"In Japan, individuals have opened 600,000 so-called margin trading accounts at brokerages that lend money for currency bets, 80 percent more than a year ago, according to Yano Research."

Margin trading is a treacherous endeavor; it could end up badly for the retail investor. Investment banks tend to have the ability to absorb losses when the foreign exchange markets turn against them; retail traders are not likely to have that much of a cushion. Margin trading by individuals strikes me as a fad that will eventually result in significant losses for a significant proportion of these people. It is an analog of the day-trading of stocks that was popular in the US a few years ago. Simply trading with their existing holdings of yen savings would be a better tactic for trading on the lack of good investment opportunities within Japan.

That said, I think it is interesting that retail traders
"are the bane of professional currency traders,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., who has been trading in Japan's capital city for 25 years. ``It's becoming hard to make money as the dollar-yen doesn't move as it used to, because of their constant buying on dips.''

Clearly, retail trading is a new factor that professional traders hadn't taken into account.