Tokyo Housewives Trade Yen as Japan Spurs Inflation: Currencies

Apr 16, 2014 5:27 am ET

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April 16 (Bloomberg) -- Bank of Japan Governor Haruhiko Kuroda’s success in stoking inflation is changing the way 63- year-old Tokyo housewife Ritsuko Ueda manages her savings.

Ueda is one of thousands of ordinary Japanese trying to protect the value of their capital by resorting to currency margin trading, a high-risk way of dealing foreign exchange that uses borrowed money. Individual investors held 767,902 accounts for speculating on currencies in February, the most since July 2005 and up from 595,698 a year earlier, according to Tokyo Financial Exchange Inc.

“I have high hopes that Kuroda’s next measures will drive yen weakness and stock gains,” Ueda said last month at a training seminar in Tokyo organized by Gaitame Online Co., a Japanese currency-trading company focused on the retail market. “I’m a big fan.”

Kuroda was appointed in March last year to carry out Prime Minister Shinzo Abe’s policy of flooding markets with cheap money and ending 15 years of crippling deflation by depreciating the yen. With consumer prices starting to rise, Japanese can no longer simply leave their savings in bank accounts and watch their value increase, making trading strategies with potentially higher returns attractive.

The yen has weakened 9 percent since April 2013, when the BOJ announced its unprecedented monthly purchases of approximately 7 trillion-yen ($69 billion) of government bonds. It reached a five-year low of 105.44 per dollar on Jan. 2, before rebounding as investors sought safer assets amid a rout in emerging markets and, more recently, the crisis in Ukraine.

Predicting Slide

Ueda, who said she’s been margin trading for more than two years and made a 50 percent profit last year from 2012, predicts Japan’s currency will weaken to 120 per dollar by year-end, from 101.92 yesterday in New York. That makes her more bearish than the median estimate in a Bloomberg survey of more than 50 strategists, which puts the yen at 108 by Dec. 31. Ueda holds positions in yen crosses including U.S. and Australian dollars and the euro.

Consumer prices excluding fresh food increased 1.3 percent in February from a year before, matching December’s five-year high and more than halfway to the 2 percent target the BOJ set a year ago. Prices were falling as recently as last April. An increase in the nation’s sales tax this month has also pushed up people’s living costs.

‘Double Whammy’

“On top of inflation, the sales tax increase is a double whammy and individuals can’t afford to simply leave their money in bank accounts,” Masakazu Sato, the foreign-exchange adviser at Gaitame, said in an April 11 phone interview. “We’re seeing the number of applications for our seminars increase as these Mrs. Watanabes seek to protect their livelihoods,” he said, referring to a term for Japanese individual investors based on a common surname and because it’s traditionally housewives who run their families’ finances.

Gaitame’s seminar on currency trading techniques on March 26 had 39 applications, the most this year, according to Sato, who previously worked at BNP Paribas SA and Tokio Marine & Nichido Fire Insurance Co. Of 64 people surveyed by Bloomberg News at two Gaitame seminars last month, 39 said they expected the cost of living to rise and 34 planned to invest more money in financial securities.

“There’s less incentive to leave your money in cash and bank savings considering the prospect that Japan will transform into an inflationary country from a deflationary one,” Daisaku Ueno, the Tokyo-based chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities Co., a unit of Japan’s biggest financial group by market value, said by phone on April 11. “We may also start to see some capital going into more risky currency trades.”

Savings Levels

The need to prevent inflation from eroding the value of money is all the more acute for Japanese given their high savings levels compared with other developed nations.

Japan’s households had 1,645 trillion yen of investments as of Dec. 31, the most on record in central bank data going back to 1997 and almost equal to the U.S.’s $16.8 trillion gross domestic product reported by the Commerce Department. A total of 874 trillion yen, or 53 percent, of these funds were in cash or bank savings, compared with 12.5 percent in the U.S. and 35 percent in Europe, where people’s wealth tends to be tied up in real estate.

The individual investors who use Gaitame’s online trading system face the prospect of a weaker yen and even higher inflation should the BOJ ease monetary policy further to boost growth.

More Stimulus

Forty-four percent of economists surveyed by Bloomberg from March 28 to April 3 said they expected Kuroda to extend monetary stimulus in July, while strategists in a separate survey predicted gross domestic product will shrink 3.35 percent in the second quarter, the worst contraction in three years.

Investors are misguided in expecting an early extension to stimulus or further losses in the yen, according to Sue Trinh, a senior currency strategist at Royal Bank of Canada. Her bank predicts the yen will climb to 100 per dollar by year-end.

Dollar-yen “risks seem asymmetrically skewed to the downside on disappointment that the BOJ may be later than what forecasters are expecting in terms of delivery,” Trinh said by phone from Hong Kong on April 14. “The BOJ will prefer to wait until the GDP release in August to really get a better picture of activity.”

Minako Sakurai, a 49-year-old woman living in the Kanagawa Prefecture to the south of Tokyo, doesn’t have the luxury of waiting. She started margin trading nine months ago after she was laid off from her job at a call center, and was attracted partly because newcomers can trade with borrowed money.

“I chose margin trading because you can start with a small amount of money,” Sakurai said on April 14 by phone. “Rising inflation means I have no other choice but to invest if I want to protect myself.”

--With assistance from Naoto Hosoda in Tokyo.