July 6 (Bloomberg) -- Yen sales by Japanese mom and pop investors this week exceeded professional traders' bets against the currency on the Chicago Mercantile Exchange.
Net short positions on the yen against the dollar, or wagers Japan's currency will fall, reached $1.1 billion among traders using borrowed funds on July 4, according to Tokyo Financial Exchange. Based on estimates of the exchange's market share, the total position of Japanese individual investors is about $19.15 billion, compared with a record $19.07 billion of bets by traders on Chicago's market.
``Retail investors are piling up yen short positions,'' said Tomoko Fujii, head of Japan economics and strategy at Bank of America N.A. in Tokyo. ``It highlights the popularity of currency investment among Japanese individuals, which overseas speculators are increasingly paying attention to.''
Japanese pensioners, businessmen and housewives are taking advantage of the Bank of Japan's 0.5 percent benchmark rate to borrow yen to buy higher-yielding currencies in New Zealand, the U.K. and Australia. The growing popularity of so-called carry trades has added to declines in the yen, which dropped against all of the 16 most-active currencies in the past year.
Japan's currency traded at 123.15 per dollar at 6:30 a.m. in London, down 3.3 percent in 2007. It fell to a record low of 167.46 per euro today. The yen has dropped 13 percent against New Zealand's dollar and 11 percent versus Australia's. New Zealand's benchmark rate is 8 percent and Australia's is 6.25 percent.
Growing Presence
``The yen will fall further due to the growing presence of those Japanese retail investors,'' said Toru Umemoto, chief currency strategist at Barclays Capital in Tokyo. ``Those mom- and-pop investors have invested only 3 percent of their total financial holdings of 1,500 trillion yen in overseas assets. They will invest more.''
The yen may fall to 125 in a month, said Umemoto, the most- accurate yen forecaster last year in Bloomberg surveys.
Futures traders increased short positions, or bets against the yen, to a record 188,077 on June 26, equal to $19.07 billion, figures from the Commodity Futures Trading Commission in Washington showed June 29. The latest figures will be released today.
1 Million Accounts
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 may exceed 1 million by the end of March, said Kaz Shirakura, senior researcher at the institute.
Account balances totaled 613 billion yen ($4.99 billion), up 62.2 percent from a year ago, Shirakura said. Leveraging typically makes their positions 10 to 30 times larger, he added.
The Bank of Japan estimates of the Tokyo futures exchange has a market share of 5.8 percent of margin trades. Japanese brokerages, including online trading Web sites, also channel their currency orders through banks, including Deutsche Bank AG.
Japanese individuals are helping to moderate currency swings by betting against professional investors, Bank of Japan board member Kiyohiko Nishimura said this week.
`Housewives of Tokyo'
``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 on July 2. ``The gnomes of Zurich were accused in their day of destabilizing markets. The housewives of Tokyo are apparently acting to stabilize them.''
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.
Nishimura went on to highlight the risk of households suddenly changing their investment strategies.
``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.''
Bank of Japan Governor Toshihiko Fukui has warned investors against the risks of one-way bets on currencies and said a sudden reversal of such trades could affect financial markets.
When the carry trade collapsed in 1998 following Russia's debt default, the yen jumped 10 percent against the dollar in two days and ended the year 15 percent higher. The biggest challenge to the strategy this year came when Chinese stocks slumped on Feb. 27, prompting fund managers to cut riskier investments and pay back yen loans. The yen rose 2.3 percent in a single day, the biggest gain since July 2005.
Finance Minister Koji Omi last week said it's ``important'' for investors and traders to realize the risk of making one-sided bets. The Group of Seven nations warned about the risk of trading against the yen in meetings in February and April.
To contact the reporter on this story: Kosuke Goto in Tokyo at at kgoto2@bloomberg.net .
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