Experts baffled by resilience of housewive currency dip buying

Discussion in 'Wall St. News' started by makloda, Jul 3, 2007.

  1. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aOJhVZpAwhns
    Housewives Reduce Currency Swings, BOJ Nishimura Says

    July 3 (Bloomberg) -- Japanese housewives are helping to moderate currency swings by betting against professional investors, Bank of Japan board member Kiyohiko Nishimura said.

    ``The arrival of Japanese households as major investors seems to have affected foreign-exchange markets,'' Nishimura, 54, said in a speech at a meeting at the Brookings Institute in Washington yesterday. ``The gnomes of Zurich were accused in their day of destabilizing markets. The housewives of Tokyo are apparently acting to stabilize them.''

    Nishimura is the first policy maker to comment on increasing foreign-exchange margin trading, which last month helped push implied volatility on one-month yen options to the lowest since the Bank of Japan began compiling data in August 1992. Japan's overnight rate, the lowest among major economies, has prompted domestic investors to seek higher-yielding assets overseas. Nishimura said the pace of rate increases can't be prescheduled.

    ``Nishimura's comments describe a typical trading pattern of Japanese retail investors,'' said Masafumi Yamamoto, currency economist at Nikko Citigroup Ltd. in Tokyo. ``They are buying foreign-currencies on dollar dips and selling at a profit.''

    The ``gnomes of Zurich'' was a term used by U.K. politician Harold Wilson to describe financial speculators based in the Swiss city who were speculating against the pound.

    Contrarian Strategies

    Lower volatility, which implies smaller exchange-rate fluctuation risk, may encourage Japanese investors to use the central bank's 0.5 percent overnight lending rate to borrow yen to buy higher-yielding currencies in Australia, New Zealand, and the U.K. to increase returns on 1,536 trillion yen ($12.5 trillion) in savings in so-called carry trades.

    The yen traded at 122.59 per dollar at 7:25 a.m. in London, down 2.9 percent in 2007. The currency fell to a record low of 167.06 per euro today. By comparison, it has dropped 12.5 percent against New Zealand's dollar and 10.6 percent versus Australia's this year. New Zealand's cost of borrowing is 8 percent and Australia's 6.25 percent.

    In Japan, individuals have opened 664,802 margin trading accounts at brokerages that lend money for currency bets, almost double a year ago, according to Tokyo-based Yano Research Institute Ltd., publisher of an annual report on the business. The number of those accounts may exceed 1 million by the end of March, said Kaz Shirakura, senior researcher at the institute.

    The amount of that balance totaled 613 billion yen, up 62.2 percent from a year ago, Shirakura added.

    Nishimura went on to highlight the risk of households suddenly reversing their investment tactics.

    ``We do not know how far the contrarian strategies of Japanese retail investors can go,'' Nishimura said. ``A sudden change in their behavior is likely to shift the direction and the magnitude of trading in many foreign-exchange markets.''

    The central bank published a draft of Nishimura's speech on its Web site today.
     
  2. japanese housewives are smarter than professional currency traders. ha.