For evidence of Japanese retail investors’ newfound risk appetite, look no further than the foreign exchange market, where dealers estimate that about 20% of daily volume now arises from margin accounts of small investors selling yen and buying foreign currency bonds to capture interest rate differentials. The yen carry trade is still very popular in Japan itself.
While the biggest interbank FX dealers don’t deal directly with such accounts because of counterparty credit constraints, it’s a potential flow of business they are watching closely. “There’s more than ¥1,400 trillion [$12 trillion] of private wealth in Japan and no more than 2.3% of it, or roughly ¥33 trillion, is in foreign currency,” says Junpei Yamamoto, head of currency business, Japan, at JPMorgan. “It’s a business segment that’s been growing since last year and I think it has plenty of room to grow further.”
In the bubble era, the Tokyo FX business boomed as Japanese corporate treasurers and trading companies speculated wildly. The bursting of the bubble, improved risk management and mark-to-market accounting put paid to all that. The market went quiet.
But the Tokyo FX market has enjoyed plenty of growth in the past year.
