Japan to impose cap on forex margin trade leverage

TOKYO, July 31 (Reuters) - Japan’s foreign exchange margin traders will have their leverage capped at 25 times collateral two years from now, the government said on Friday, a move that could curb retail investors’ zest for currency speculation.

The Financial Services Agency said leverage would be capped at 50 times starting in August 2010, and at 25 times starting a year after that, in line with a proposal it unveiled in late May.

That would be a big cut for some brokers who offer leverage of 400 times or more, and for margin brokers in general.

Foreign exchange margin trading, which allows investors to make large bets with relatively small amounts of money, has boomed in the past few years as Japanese households, dissatisfied with puny interest rates at home, looked abroad for higher yields.

In a sign of their growing clout, a Bank of Japan report said last year that foreign exchange margin trading in Japan may account for 10 percent of all yen spot trades conducted globally each day. (Reporting by Masayuki Kitano)