The legions of Japanese retail investors
holding onto the carry trade, dubbed the Japanese housewives or Mrs Watanabes, faced more pain on Friday – a Japanese holiday – as USDJPY slumped to a new low
for the year, indeed its lowest level since October 2014.
USDJPY broke through Thursday’s low just
above 107.80 before dropping sharply to 107.10 as Asian traders, thinned by the
Japanese holiday, triggered yet more stops from Japanese retail traders. In Europe later the pair fell further to 106.20.
The pain compounds yesterday’s wound
inflicted on the carry trade by the Bank of Japan’s surprise decision to do
nothing at its monetary policy meeting Thursday. This prompted a collapse of
more than 2.5% in short order with USDJPY falling from 111.70 to 108.80, before
dropping again to a low of 107.85 and closing around 108.10.
The continued strength in the yen is
particularly galling for Japan’s central bank which has made a weaker yen one
of the cornerstones of its plan to invigorate Japan’s sluggish economy. On
January 29 this year, the Bank of Japan surprised markets (and surprise seems
to be the theme of the year) by cutting interest rates into negative territory.
This attempt to weaken the yen was successful for all of one hour as USDJPY
rose sharply to 121.68 – a level not to be seen again.
Since then, USDJPY has fallen by almost
The problem is even more acute for the army
of retail traders who have shorted yen in favour of higher yielding currencies.
Two particular favourites of the carry traders have been the South African rand
and the Mexican Peso, and in both crosses the losses have been acute.
In the last six months, ZARJPY has fallen
15% – it has been whippy but overall stable for the last few months, while the
MXNJPY has fallen 16.8% over the last six months and 7.5% since January.