The WSJ reports that Japanese individuals are engaging in the yen carry trade, too.
Now people such as Naomi Kashiwazaki, 29 years old, have joined the fray. She trades currencies from her small apartment in Tokyo’s suburbs. She started about a year and a half ago to supplement the income from her online store, which sells designer athletic shoes that are hard to find in Japan. In recent months, she has earned an average profit of $8,600 a month.
“I must say, I am addicted to this now,” she says.
Tens of thousands of other investors like her are doing the same thing. With Japanese interest rates hovering at a low 0.5%, they borrow big piles of yen cheaply and then invest it in currencies elsewhere, looking for higher returns. Ms. Kashiwazaki makes trades totaling $200,000 or so a day among several currencies, ranging from the U.S. dollar to the Swiss franc.
As the yen gyrated over the past week, traders such as these are believed to have played a major role in the volatility. Last week, the yen gained 3.5% against the dollar.
“Japanese individuals are doing essentially the same thing as hedge funds,” says Tohru Sasaki, chief foreign-exchange strategist at J.P. Morgan Chase Bank in Tokyo. “Together they are acting like an enormous hedge fund.”
A combination of technology, deregulation and low interest rates is enabling individual Japanese to use the same kind of investment techniques as the pros. Borrowing money to trade currencies has become so popular in Japan that individual traders — sitting at their computers in homes across the country — now trade tens of billions of dollars a day, according to some estimates.
J.P. Morgan strategist Mr. Sasaki estimates that in the months leading up to last week’s sharp movements, Japanese individuals some days held foreign currency valued at more than five trillion yen, or $43 billion. That is similar to his estimate for the amount of yen loans taken out by professional investors in order to speculate in foreign currencies.
I have written before about the significance of the yen carry trade. This article supports my argument by showing how widespread it has become.