TOKYO, April 6 (Reuters) - Japanese retail investors have become a significant force in the trading of the South African rand, which has been roiled by a political crisis in recent weeks.
According to the Tokyo Financial Exchange (TFX), a major Japanese trading exchange provider for retail margin trading, the rand came second in both February and March when measured by numbers of traded lots. The Turkish lira was third in February, though slipped back to fifth in March.
The rand has edged out more liquid and more stable currencies like the Australian dollar and the pound. As recently as July 2016, the rand was only the fifth-most traded on TFX.
Market strategists say the higher yields and greater volatility of the two currencies had attracted the interest of a small army of Japanese individual traders who can at times be an influential factor in parts of the foreign exchange market. They are particularly important during early Asian hours when there is little liquidity in the market in such currencies.
TFX roughly holds about a fifth of the 1.7 trillion yen ($15.36 billion) of "margin deposits" in the Japanese retail currency market, which are sums of money individual investors put down with their brokers in order to trade.
On March 30, South Africa's President Jacob Zuma fired finance minister Pravin Gordhan after days of speculation that had rocked the country's currency and other financial markets.
It is unclear whether most of the Japanese retail traders lost money or whether by taking short positions a significant proportion may have come out ahead as the rand plunged.
According to data from the Financial Futures Association of Japan, at the end of February long positions in the rand-yen trade held by retail currency traders were more than four times the short positions at 138 billion yen against 29 billion yen. The figures for March, though, won't be available until the middle of April.
"MRS WATANABES" Gordhan's dismissal has unsettled financial markets, as he had a reputation among investors as a source of policymaking stability. His firing also prompted Standard & Poor's to cut South Africa's credit rating to junk on Monday. The South African currency has dropped 3.5 percent against the yen so far in April, at one stage reaching a low of 7.9 yen per rand. Monthly rand/yen chart: reut.rs/2nVxYZz "Any bargain hunting by Japanese retail buyers are likely to be overwhelmed in the global markets, where sentiment is firmly negative towards the rand given its rating issues and political strife," said Masashi Murata, a senior currency strategist at Brown Brothers Harriman in Tokyo.
The attraction has partly been South Africa's benchmark repo rate of 7 percent and Turkey's benchmark, the one-week repo rate, of 8 percent. The Bank of Japan's uncollateralized overnight call rate has been stuck near zero percent for much of the past decade. The retail investors in foreign exchange usually trade on margin and are often dubbed "Mrs Watanabes" – a name like "Smith" in Japan and a term that became popular more than 10 years ago, relying on the image of a typical Japanese housewife trading currencies at home. Some online foreign exchange brokers, though, suggest it might sometimes be more accurate to use the term "Mr Watanabe" as many of their clients are male.
The Turkish lira plumbed a record low of around 29 yen per lira in January and its recent bounce from the trough has lost steam, with longer-term charts showing the currency still firmly in the grip of a downtrend. That is because of political uncertainty as President Tayyip Erdogan consolidates his power and the risks stemming from the war in neighbouring Syria, as well as Turkey's large current account deficit.
Monthly lira/yen chart: reut.rs/2nVvkDe
"Demand for the rand and lira stems mainly from individual investors who want to earn 'swap points,' more than from day traders. The yields these currencies offer are very high compared to domestic stock dividends and bank savings rates, and that is a huge draw for users of our exchange," said Hironori Ofusa, director of the margin contracts marketing department at TFX.
$1 = 110.7100 yen Reporting by Shinichi Saoshiro; Editing by Martin Howell