(Bloomberg) — Japanese retail investors are gradually reinvesting in higher-yielding currencies such as the Mexican peso and Turkish lira as the yen’s strength shows signs of easing.
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Net short positions in the yen against the Mexican peso and Turkish lira recovered to levels not seen since Aug. 2, according to data from the Tokyo Financial Exchange’s Click365 platform. Positions betting on the yen’s decline against the peso recovered 19% to 67,808 contracts from Aug. 5, when positions fell 47% in a single day after the yen surged at the start of the month.
Positions betting on the lira to rise against the yen also rebounded 4% to 655,539 contracts from a 17% drop on Aug. 5, according to data from Click365. The yen has fallen about 3% from its recent high hit on Aug. 5.
Japanese retail investors had been flocking to carry trades, borrowing yen to buy higher-yielding currencies, but on July 31 the Bank of Japan raised interest rates for the second time this year, causing the yen to strengthen against the dollar. This caused many of their yen-bearish positions to take losses and may have led to margin calls as they were leveraged.
The return of retail investors to carry trades suggests their “wounds have healed with time,” but “the recovery is slow as investors are returning to the market cautiously, keeping leverage low and managing risks,” said Yoshio Iguchi, head of markets at Traders Securities in Tokyo.
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