Japan’s foreign currency deposits grow at fastest pace since 2015

Oct 11 (Reuters) – Japanese retail foreign currency deposits have surged this year as local investors abandoned the weakened yen and zero-yielding local bond markets to look to higher-yielding overseas markets.

Bank of Japan data shows foreign currency deposits at domestic banks jumped to 26.58 trillion yen ($182.38 billion) at the end of August, up 8.3% since the start of the crisis. year.

This increase in filings in the first eight months of this year was the highest since 2015, the data shows.

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Foreign currency deposits of Japanese retail investors

While other major central banks have raised interest rates this year to fight inflation, the Bank of Japan has stuck to its ultra-loose monetary policy, keeping 10-year yields pegged to zero.

Spreads between Japanese 10-year government bonds and US Treasuries are close to 4 percentage points.

Yield spread between US and Japanese government bonds

“Foreign currency deposits, a priority for relatively long-term investments, have risen alongside the yen’s depreciation this year and may have contributed to some extent to the yen’s decline this year,” said analyst Lhamsuren Sharavdemberel. to Barclays Bank, in a statement. report.

“Most of the increase, of course, is attributable to the change in valuations due to the weak yen,” he said. But there was a sharp rise even after adjusting for changes in the nominal yen exchange rate, he said.

Foreign exchange margin trading, in which retail investors can borrow up to 25 times their money as leverage, has also seen an increase this year. Margin trading volume hit a record high of 1.229 trillion yen in June. In August, trading volume was just under 1.159 trillion yen.

Retail forex trading volume in Japan

The value of long dollar positions held by retail investors at the end of July was 3.07 trillion yen, the highest since January 2015.

Analysts expect a further rise in foreign currency deposits, given the prolonged weakness of the yen and Japanese investors looking for ways to deploy idle assets. Households held a record 1.102 trillion yen in cash and deposits at the end of June.

This spike in interest in foreign currency deposits comes at a time when the yen is trading at a 24-year low and the BOJ is scrambling to stem its decline.

Japan’s foreign exchange reserves fell to $1.238 billion at the end of September following the government’s dollar-selling intervention during the month to halt a sharp decline in the yen, finance ministry data showed on Friday. .

Japanese household cash and deposits

“The absence of any overt profit taking as well as the sustained rise in deposits even as the yen has lost value may again indicate that the preference for foreign currency deposits remains firm in the face of widening gap between domestic and foreign returns,” Barclays’ Sharavdemberel said.

($1 = 145.7400 yen)

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Reporting by Patturaja Murugaboopathy; Editing by Vidya Ranganathan and Christian Schmollinger

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