21 Jul 2015
Impact of Mrs Watanabe in FX down by more than 90% - Nomura
FXStreet (Bali) - According to Nomura, the impact of Mrs Watanabe type of trading in FX has declined by more than 90% in the past few years since the global financial crisis of 2008.
Key Quotes
The third category of Japanese retail investors is that of so-called “Mrs. Watanabe” investors, a group often mentioned in both domestic and overseas media. Strictly speaking, these are margin traders making FX trades from deposit accounts. Foreign investors sometimes confuse margin traders with retail investors who trade toshins and Uridashi bonds.
"Previously, most margin traders made leveraged carry trades, selling large amounts of JPY and purchasing foreign currencies. Of course, this resulted in sizable flows into high-yield currencies such as AUD and NZD, and this was a factor driving the appreciation of these currencies."
"These investors no longer have the same impact on the FX market that they once did. After the Lehman shock, in response to increased volatility in the FX market the Financial Services Agency introduced restrictions on leveraged trades to protect margin traders."
"Before 2010, 200-400x leveraged trades were permitted, but the top limit is now capped at 25x. Even assuming that there were no change in the scale of investors’ principal capital used for leveraging trades before the regulatory changes, we believe the impact of this type of trading has therefore declined by more than 90%."
"Of course, stop/loss orders can be set at various points and these sometimes still have an impact on the FX market."
Key Quotes
The third category of Japanese retail investors is that of so-called “Mrs. Watanabe” investors, a group often mentioned in both domestic and overseas media. Strictly speaking, these are margin traders making FX trades from deposit accounts. Foreign investors sometimes confuse margin traders with retail investors who trade toshins and Uridashi bonds.
"Previously, most margin traders made leveraged carry trades, selling large amounts of JPY and purchasing foreign currencies. Of course, this resulted in sizable flows into high-yield currencies such as AUD and NZD, and this was a factor driving the appreciation of these currencies."
"These investors no longer have the same impact on the FX market that they once did. After the Lehman shock, in response to increased volatility in the FX market the Financial Services Agency introduced restrictions on leveraged trades to protect margin traders."
"Before 2010, 200-400x leveraged trades were permitted, but the top limit is now capped at 25x. Even assuming that there were no change in the scale of investors’ principal capital used for leveraging trades before the regulatory changes, we believe the impact of this type of trading has therefore declined by more than 90%."
"Of course, stop/loss orders can be set at various points and these sometimes still have an impact on the FX market."