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Retail flows having impact on yen rates; housewives to blame?

July 4, 2007
By Ken Worsley


But you already knew about the first part of that headline, right? It’s been all around the news for a while now, with the Nikkei telling us that individuals are keen to sell yen even at 120 on May 22, and IHT/Bloomberg telling us that the yen’s retail outflows are putting the Bank of Japan in a “bind” on June 11.

Both of these are signs of an overheating; once the average investor is on to the trend, that usually means it about to change direction (according to bullish lines of thought). Yet, we’re aware that the ultra-low interest rates in Japan are helping feed the carry trade, so individuals might be protected for now. The danger is if the BOJ does make a slight rise and there is a panic - but not a trend reversal - that wipes out (or spooks) heaps of unsavvy individual investors.

That’s neither here nor there. What is here is an article published yesterday by the Financial Times entitled, “Yen absorbs ‘Japanese housewife effect’.” This is the blame twist we’ve been waiting for: the weak yen is due to housewives sitting around selling yen. Brilliant. How do we stop them? Here’s my favorite quote from the article:

The gnomes of Zurich were accused in their day of destabilizing markets. The housewives of Tokyo are apparently acting to stabilize them.

That’s from none other than Bank of Japan board member Kiyohiko Nishimura.

The article gives us a rough estimate that exposure from margin trading could currently be at 20,000 billion yen, but does not say how much of this is driven by housewives.

Given the amount of capital tied up in yen-selling, Derek Halpenny, an economist at the Bank of Tokyo-Mitsubishi UFJ, is of the opinion that Japanese authorities might be reluctant to intervene in the foreign exchange market in order to strengthen the yen given the potential financial consequences for the general population.

I wonder if a Cabinet member will go on record with this?

Filed Under Carry Trade, Exchange Rates, Forex 

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Comments

One Response to “Retail flows having impact on yen rates; housewives to blame?”

  1. WG on July 5th, 2007 1:20 am

    Ah…so interest rates can’t be raised out of fear the carry trade might unwind (which it wouldn’t yet anyway) and thus bankrupt the poor, helpless individual investors who have staked so much on margin. Just another excuse for political pressure on the BOJ, it seems. Excuse me if I feel no sympathy.

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