The UK’s Times, in “The Kimono Traders,” gives a detailed portrayal of the activities of Japan’s army of retail currency traders, who are overwhelmingly female. They also happen to be aggressive and confident speculators, and control enough in the way of financial assets so as to dominate the activities of foreign institutional investors who are also playing the carry trade.
This female cadre has consistently sold yen into every rally, and their actions alone have kept the currency undervalued, which is creating a dilemma for the central bank. This brave new world of powerful retail traders sounds very much like the heyday of day traders in the dotcom era, and is likely to come to a similar sorry close.
The claim is that Japan’s central bank has effectively lost the ability to influence the currency’s direction because these retail trades in aggregate are large and uncontrollable.
That statement of course is nonsense, and the reality is more complicated (as an aside, while central banks’ control over currency levels is limited, but they can send powerful signals that markets respect). If push came to shove, it would be easy to cut the air supply of these retail traders by restricting their access to margin credit (say by setting net worth requirements, or a certain level of capital commitment that would exclude a large proportion of current players from the market. Or similarly, it could impose a transaction tax that would make small trades uneconomic. (Admittedly, this sort of change may not fall within the central bank’s purview. It may instead come under the jurisdiction of the FSA, or might even require legislation).
Similarly, the notion that the retail speculators will keep the yen low on an ongoing basis doesn’t hold water either. It’s essentially a weight of money argument. The first time I heard it was in Japan in 1985 (even then Japanese equities were overvalued by international standards). I was assured that Japanese stocks would never go down because Japanese financial institutions controlled so much capital and they would always invest the bulk of it at home. You know how that movie turned out. The analogy does suggest, however, that the domination of the fearful females could continue far longer than any sensible observer would anticipate.
The reason the authorities aren’t yet taking action is fear of a political backlash. So far, despite the possibility of large-scale disruption of foreign economies and of large investor losses if the yen were to appreciate, this speculation is profitable and popular. And the powers that be believe that retail investment in higher-yielding foreign markets is a good thing. So intervening to correct this situation would be seen as wealth destruction, rather than prudent dampening of speculation. Regulators are likely to wait for the train to start to go off the rails before they act.
What might lead to an unwind? One scenario comes from an article earlier this year in the Financial Times, which argued that continued currency imbalances would lead to a deflationary crisis. The entire piece is worth reading, and here is the meat of its argument:
Central banks are likely to attempt to ratify current inflated asset values by inflating prices and incomes to avoid a deflationary economic collapse. Unfortunately, sharp reductions in interest rates in the US, UK and the euro area will lead to a rapid unwinding of the global carry trade, perversely threatening to worsen problems in the credit markets.
The solution would have to involve massive unsterilised intervention by the Japanese authorities, which would have the effect of inflating Japanese prices to a level consistent with the current yen exchange rate, thereby alleviating huge upward pressure on the yen as the carry trade unwinds.
Combined with a similar inflation in the US this “solution” would require roughly a doubling of the Japanese price level, destroying the real value of Japanese savings.
From the Times:
In an elegant café overlooking Shiba Park in Tokyo, Ritsuko Shiono looks up from her book to check the foreign-exchange spot rates on her pink, sequin-dashed mobile phone. She is particularly interested in the Turkish lira. Meanwhile, 5,400 miles away in Ankara, the Turkish central bank is in panic mode because of Ritsuko – and the thousands of Japanese women like her who have quietly seized control of global currency markets.
Ritsuko, 34, is, as she puts it, “waist deep” in a fiendishly complex currency swap involving the Japanese yen, the US dollar and the Omani riyal. The trade has lost her more than 100,000 yen (£417) this morning alone. She is beginning to think she might get more joy from borrowing another 200,000 yen from her online broker and selling her yen for Turkish lira, but is irritated because the prices she’s after have not yet flickered on to her little screen.
To the growing horror of male Japan, when Ritsuko’s mind is not on the foreign exchange markets it is on stocks, bonds, property and other investment opportunities that might make her rich. She, and others like her, are blowing to smithereens one of Japan’s oldest taboos: in the emerging investment sisterhood, money is no longer a dirty word. In the past year eight new investment magazines have been launched to cater for them, and even their traditional fare of fashion and lifestyle titles have begun to incorporate sections on making money.
In the space of just a couple of years, Japanese online currency speculators – many of them housewives, elderly matriarchs or young working women – have taken the markets by storm. Economists, major corporations and investors, awed by the sheer market influence of the Japanese speculators, have been forced to rethink their analysis of global currency markets. James Gow, the British chief executive and co-founder of one of Japan’s big three internet currency brokerages, FXOnline Japan, says: “We are looking at Japanese women taking a very different attitude to risk and markets than they used to, and a lot of people have been taken by surprise by that.”
Borrowing their native yen more cheaply than any other major currency, multiplying their initial stake by as much as 200 times through margin trading and then dipping into dozens of higher-yield foreign exchange markets, the online traders of Japan now account for around $15 billion (£7 billion) of deals each day. Some have made the equivalent of hundreds of thousands of pounds in just six months’ trading, others trade with a fraction of that. They are, say currency analysts, “obsessive” sellers of the yen – relentlessly ditching the Japanese currency and its wafer-thin interest rates for the more lucrative currencies of New Zealand, Brazil, South Africa and Iceland. About a fifth of all trades that hit the screens at the Nomura brokerage are generated by “housewives” – the catch-all term the professionals use to describe Ritsuko and her powerful cohorts.
“Everyone seems so surprised that Japanese women are such energetic currency investors,” Ritsuko says, “but they really should have paid more attention to us. In an information economy, women are more powerful than men. We are the people who pay minute attention to tiny shifts in fashion and spend our lives online checking for gossip on the best restaurants and hotels.”
Ai, an investor from Nagoya in her late twenties, also argues that it is Japanese women’s ability to mine information that has now been transferred to the currency and stock markets. There are other advantages of their sex. While male online traders tend to close up their positions at 7pm and head out for a beer, she sneers, women just keep on trading. Some trade “spot forex”, dipping in and out of currencies around the world and playing directly on the volatility of markets to reap small gains. Others, by pumping up their initial stake via borrowings, take advantage of the differentials between overnight lending rates of various currencies: there is a lucrative difference between the 0.5 per cent rate for the yen and, say, the 8.25 per cent of the New Zealand dollar or the 17.5 per cent of the Turkish lira.
Turkey’s nightmare is that the Japanese housewives will lose interest and pull out of the lira, causing it to plunge. And it is not just the Turkish Government that is petrified by the Japanese housewives’ spectacular assault on its currency. Two months ago, when the New Zealand Government tried to intervene in currency markets by selling the dollar, its efforts were immediately and completely consumed by Japanese investors with virtually no effect on the exchange rate.
And as well as wrestling with the subversive, utterly unexpected cultural phenomenon of “greed is good” women, Japan itself has started to panic that this new breed of profit-hungry housewives threatens its economic revival and global standing. Because the housewives are endless sellers of the yen, any upward pressure on the Japanese currency is almost entirely absorbed by the online traders. For months now, the yen has fallen against most global currencies at every turn.
James Gow of FXOnline says: “Where the Government of Japan used to spend billions of dollars intervening in currency markets and fighting the prevailing tide to deflate the yen and help exporters, it now has thousands of Mrs Tanakas doing the same thing out of choice.” Although government intervention remains an option, things may be beyond immediate central bank control: individual Japanese have opened 600,000 margin trading accounts in the past year, with the deposits on those accounts amounting to around $5 billion.
One of FXOnline’s customers is Yoshie Akai, a 70-year-old grandmother from Kobe who has been an avid trader of forex for three years. She woke last Friday morning to find that she had lost about 8 million yen (£33,000) overnight. With more sangfroid than the most ruthless Wall Street dealing-room shark, she was trading again by mid-morning. “I was depressed in the morning. But if I leave this as it is, I will just be a loser. I’ll recover from this disaster,” she says. “I used to know when to buy. Now I’ve learnt the hard way when you should sell. You get a different sense of reality and risk when it is just numbers on a computer, not a bundle of notes sitting in front of me.”
Akai is one of two types of women traders emerging in Japan. One is the traditional holder of the family purse-strings. The once cautious housewife who routinely and unquestioningly used to deposit the family salary into postoffice savings (or might occasionally be tempted into a conservatively managed mutual fund) has decisively lost her faith in the strategy that she was told would ensure financial security. Ten years of near zero interest rates have shattered her trust that “Japan will provide”. She feels let down by Japan and she is looking for ways to make enough cash for a big holiday, or perhaps a new car.
The other is a totally new breed of investor: young women in their twenties and thirties using their own salaries to gamble on currencies or stocks and driven by the desire to make money fast. Their ambitions go far beyond a new handbag or a foreign trip. They want houses, fast cars and a lifestyle that has little in common with the thriftiness and self-denial preached by their mothers.
Both types fill the teaching room of the advanced investment class at the Nagoya financial school – a course designed for, and taught by, women. Yuko Kuriki, the instructor, says women want to use the markets to assert their independence as thinkers and create their own financial security. “Japan certainly has a sense of embarrassment about individuals getting rich but people have come to realise that without risk, you can’t get anywhere so there is a shift from savings to investment. Some women are now risking the family savings on stocks and forex: some are worried about their future, others are unashamedly greedy,” she says. “We are a culture that is traditionally most concerned with not losing money, rather than making lots of it. But the country has offered no yields for a decade so we have had to become investors.”
One of her students, 58-year old Etsuko, took to the markets after her husband killed himself during Japan’s financial crisis of 2003. “Japan has let us down, and I have to invest to make a living,” she says.
Sitting on the desk in front of Etsuko, 27-year old Ai represents the more aggressive face of Japanese women investors: “I want to challenge my lack of capital. I want to buy my own house and I’m a better investor than my husband. The markets offer me a sort of empowerment,” she says.
Proud of her class, Ms Kuriki stresses that her students, by the time she has finished with them, are not simply haphazard stock-pickers. “They are not like a lot of men. Women sell quickly when shares start falling, but they are much quicker than men to get back into the market and start buying again on the dips. Men decide on the basis of theory or past experience. Women look at the fundamentals.”
A yen for trade: Ritsuko’s day
7am: Ritsuko decides on two currency bets. She has 100,000 yen (£417) in her online trading account and the brokerage will lend her ten times that.
8am: She studies the Nikkei and Bloomberg and reckons the euro will rise
8.15am: She borrows 500,000 yen. (cheaply: the overnight interest rate is just 0.5 per cent), goes on to the spot foreign exchange market and buys euros at one euro per 160 yen.
8.30am: A medium-term bet: she borrows another 500,000 yen and buys New Zealand dollars, which will earn 8.25 per cent interest.
12 noon: Lunch and shopping (there are sales at Furla and Max Mara).
5.31pm: She was right: the euro is up 1 per cent. She buys back her yen, this time getting 176 yen per euro. After brokerage fees, her profit is around 5,000 yen – which about pays for her lunch.
2 months later: Ritsuko believes the Icelandic krone will be more lucrative than her New Zealand dollars. She exits her position with one sixth (two months out of 12) of the 8.25 per cent annual interest on the NZ dollars, pocketing around 6,100 yen – which she immediately churns into her next trade.