Mrs Watanabe stays sceptical of strong yen, piling up short bets

TOKYO, Sept 16 : Japanese retail investors are betting that recent gains in the yen will be short-lived, maintaining significant short positions that could increase volatility in currency markets.

The yen jumped to a seven-month high against the dollar last week, and speculative positions flipped to long bets as markets became more convinced about the Bank of Japan's policy tightening path.

But household punters in Japan remain sceptical of the fate of their currency, domestic brokers say. Their short bets stood at 2.886 trillion yen ($18.58 billion) at the end of August, more than half the global total of 4.1 trillion yen, according to estimates by Rinto Maruyama of SMBC Nikko Securities.

"Those positions would have to be cut if the yen rises further, which could act as an accelerator to the currency's gain," said Maruyama, a senior strategist for FX and rates at the brokerage.

A years-long weakening trend for the yen accelerated with the election of fiscal dove Sanae Takaichi as prime minister in October and concern that the BOJ was behind the curve in raising rates.

Japan's retail investors, colloquially referred to as Mrs. Watanabe, are enthusiastic players in so-called carry trades, where they sell a low-yielding currency to buy a higher-yielding one.

Dollar-yen is a highly liquid pair, but currencies bearing higher returns such as the Turkish lira, Mexican peso and South African rand are also popular targets.

By holding these positions, investors can receive "swap points," or the interest-rate differential between the two currencies.

But as the yen fell toward 160 per dollar in May, domestic retail investors shifted to a rare long position on Japan's currency as they braced for potential intervention, said Hiroaki Karibe, manager of retail marketing at SBI Securities.

The yen sank to a four-decade low of 163.99 per dollar in July, prompting joint intervention by Tokyo and Washington. It then rallied to as strong as 152.89 on September 8.

The yen could strengthen further if the Federal Reserve keeps rates unchanged this week or shows a dovish stance while the BOJ shows a hawkish bias on Friday, strategists said.

But Japanese retail investors are betting the other way, raising yen shorts versus the dollar by 50 per cent since September 1, on expectations the yen's bearish fundamentals will win out, said Shuhei Uehara, foreign exchange analyst at currency broker Gaitame.Com.

"If the dollar-yen rate breaks below 152, that could accelerate the unwind of yen shorts," Uehara said.