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Surging yen catches Japan's retail investors off guard

Tokyo

MONDAY'S surge in the yen has left yield-seeking Japanese retail investors wrong-footed again.

Japan's currency surged to all-time highs against the South African rand and Mexican peso early in Asian trading. That's after margin accounts just last week boosted their net long positions on these currencies to the highest level at least since December, according to the latest data from the Tokyo Financial Exchange.

The yen surged on haven demand on Monday as an oil-price war worsened a virus-driven crisis in global markets.

Japan's retail investors typically sell the local currency in exchange for higher-yielding emerging-market currencies. While such contrarian bets help slow appreciation in the yen, sudden slides in the riskier currencies have triggered forced liquidation of margin positions in the past, causing the yen to rally further.

The slide in oil has triggered stop-loss selling on high-yielding emerging-market currencies including the Mexican peso, said Hideki Shibata, senior rates and currencies strategist at Tokai Tokyo Research Institute. "That's accelerating gains in the yen."

The peso slumped as much as 11.1 per cent to 4.6544 yen, while the rand sank 10.6 per cent to 6.0211 yen. Japan's currency strengthened against its 16 major peers, with some moves reminiscent of the January 2019 flash crash. It rallied more than 3 per cent versus the dollar.

Japanese margin accounts boosted their net long positions on the rand to 191,056 contracts as of Thursday, the highest since October, which is the equivalent of 19.1 billion rand (S$1.7 billion), according TFX data compiled by Bloomberg.

Net longs in the Mexican peso reached 68,413 contracts the same day, the most since December, and worth 6.8 billion pesos (S$464 million). BLOOMBERG