September 1, 2015 / 7:30 AM / 4 years ago

Bitten by volatility, "Mrs Watanabe" less bold about buying dollars

TOKYO, Sept 1 (Reuters) - Stung by last week’s sharp dollar plunge, Japanese retail foreign exchange traders collectively know as “Mrs Watanabe” have been shy about taking their hallmark contrarian stance, meaning less bargain hunting support for the greenback.

Margin-trading Mrs Watanabe took a drubbing on Aug. 24, when the dollar tumbled nearly 5 percent to a seven-month low of 116.15 yen as risk aversion triggered by a rout in Chinese equity markets heavily favoured the safe-haven Japanese currency.

“The plunge resulted in forcing day traders into massive rounds of dollar-selling to cut their losses,” said Takuya Kanda, senior researcher at Tokyo’s Research, a research arm of a platform provider for retail traders.

Online brokerages estimated that retail investors’ total open interest on Aug. 24 fell by roughly 20 percent from the previous day.

“Mrs Watanabe likely won’t make a full comeback until a trend is reformed and the market stabilises somewhat,” Kanda at Research said.

The U.S. dollar has since clawed back but has struggled to stay above the 121.00 yen threshold. As of Tuesday, it traded at 120.74 yen after briefly touching 121.76 yen on Friday.

“The 200-day moving average was a support level prior to the dollar/yen slide but now it represents a key resistance level, and it triggers substantial selling in its vicinity,” said Masahiro Ito, general manager of FX sales and marketing at Central Tanshi FX, a provider of trading platforms for retail investors.

The dollar’s 200-day moving average stood at around 120.80 yen.

Still, considering that the dollar was trading above a two-month high of 125 yen just three weeks ago, and with divergence in U.S. and Japanese monetary policies likely to support the greenback in the long term, the cheaper currency offered a bargain hunting chance for some.

“Our index based on sentiment currently shows that 62 percent of global retail clients favour going long on dollar/yen while 38 percent prefer going short,” said Junichi Ishikawa, a market analyst at IG Securities in Tokyo.

“Last week’s dollar/yen plunge was such that it was natural for some to instinctively buy the dollar,” Ishikawa said.

Japanese retail margin traders have come to represent a significant force in the foreign exchange market.

According to data compiled by the Financial Futures Association of Japan, monthly average trading volume in 2015 was 501.7 trillion yen ($4.16 trillion), up from a monthly average of 176.5 trillion yen in 2009.

Japanese retail trading accounts have increased significantly to 4.78 million in early 2014 from 2.75 million in 2010, according to the Yano Research Institute. ($1 = 120.7400 yen) (Editing by Kim Coghill)

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