February 28, 2018 / 4:06 AM / 6 months ago

Japan retail investors snap up weak dollar, position largest in three years

TOKYO (Reuters) - Japanese retail traders’ long positions on the dollar rose to its highest in three years, industry data showed, with the greenback’s recent broad decline providing an opportunity for contrarians to snap up the currency.

Latest monthly data from 54 margin trading operators compiled by the Financial Futures Association of Japan (FFAJ) showed that at the end of January, long positions in the dollar-yen trade held by retail currency traders were at 3.009 trillion yen (20.20 billion pounds). This was the highest since January 2015 and more than three times the short positions at 922 billion yen.

FFAJ’s statistics for February will not be available until next month.

But the dollar-buying momentum appears to have remained intact well into February. The Nikkei business daily reported that as of Feb. 13, long dollar positions held by retail investors had tripled from a year earlier, citing figures derived from top margin trading operators.

Japanese retail investors are long known to be contrarian traders and the dollar’s sharp drop this year was seen to have whetted their appetite for the U.S. currency.

“The dollar fell towards 105 yen, its lowest in 15 months - a level deemed a bargain for retail investors and considered conducive for a contrarian strategy,” said Takuya Kanda, general manager at Gaitame.Com Research Institute, who thinks the buying trend will continue as long as the dollar remains above the 100 yen threshold.

The greenback was well above 113.00 yen JPY= early in January but went as low as 105.545 in mid-February. As of Wednesday, it stood at 107.230.

The dollar has fallen against the yen this year due to factors including concerns that Washington might pursue a weak dollar strategy and mounting worries over a ballooning U.S. budget deficit.

Despite those misgivings, a steady rise in U.S. bond yields was seen prompting retail investors to buy dollars.

“Rising U.S. yields are also a big draw for retail investors. The dollar is set to become a high-yielding currency again,” Kanda at Gaitame.Com Research Institute said.

Long-term U.S. Treasury yields have risen to four-year highs this month amid expectations that the Federal Reserve would hike interest rates three or four times this year.

Reporting by Shinichi Saoshiro; Editing by Simon Cameron-Moore

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