March 14, 2018 / 8:01 AM / 3 months ago

Japanese retail investors boost long dollar positions to largest in three years

TOKYO (Reuters) - Japanese retail investors boosted their long dollar positions to their largest in more than three years last month, industry data showed on Wednesday, as rising U.S. rates drew in yield-hungry buyers.

FILE PHOTO: U.S. Dollar banknotes are seen in this photo illustration taken February 12, 2018. REUTERS/Jose Luis Gonzalez/Illustration

Data from 54 margin trading operators compiled by the Financial Futures Association of Japan (FFAJ) showed that as of the end of February, long positions in the dollar-yen trade held by retail currency traders rose to 3.028 trillion yen, the highest since January 2015.

Long positions held by Japan’s retail investors had increased from 2.107 trillion yen in December 2017 to 3.009 trillion yen in January.

Even in net terms - the amount of longs minus shorts - long positions stood at 2.250 trillion yen at the end of February, the biggest since December 2015.

(GRAPHIC: Dollar long positions - reut.rs/2Gq49bk)

The dollar’s fall against the yen this year has boosted bargain hunting from Japanese retail investors, who are long-known to be contrarian traders.

The greenback traded above 112.00 yen at the start of 2018 but has declined steadily, going as low as 105.240 on March 2, weighed by factors including fears of U.S. protectionism and mounting fears of Washington’s ballooning budget deficit.

The relatively high yields the dollar offers were seen as another key factor behind increasing demand for the greenback.

“The interest rate differential between the United States and Japan continues to widen. For retail investors faced with low yields at home, simply holding dollars generates attractive returns from ‘swap points’,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

“Swap points” are the yield differences between two currencies expressed in points.

“The dollar is now back as one of the high yielding currencies,” Ishizuki said.

The spread between 10-year U.S. and Japanese yields has risen above 280 basis points, the highest in more than a decade, as the Federal Reserve signaled the likelihood of more interest rates this year while the Bank of Japan has been stuck with monetary easing.

That spread appears set to widen further, with the Fed expected to raise rates three or four times in 2018. In contrast, the BOJ has only recently and cautiously begun to flag the possibility of an exit from its easy policy.

Reporting by Shinichi Saoshiro; Editing by Sam Holmes

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