Mrs. Watanabe burnt by currency markets

YOSHIKAZU TSUNO/AFP/Getty Images

Back in July, Passport suggested that buying yen at that time may yield some hefty returns in the near future. It turned out that Randall Forsyth of Barron’s, who made the contrarian argument originally, was right on the money. The “yen-carry trade” (borrowing yen cheaply to purchase currencies or stocks with higher return rates) has started to unwind as the yen has appreciated against other currencies. And we’re now seeing the fallout. (Click here to see a good explanation of how yen-carry trading in the currency market works in practice.) While those who invested in the currency before its appreciation are probably a lot richer from selling their higher-valued yen, others have suffered substantial losses.

Goldman Sachs’s Global Alpha fund, which is part of one of the world’s largest hedge funds, reportedly fell almost 9 percent as a result of yen carry trading. But it’s Japan’s female investors that seem to have been hardest hit.

Analysts estimate that Japanese online investors, many of them housewives trading using family savings without their husbands’ knowledge, lost $2.5 billion currency trading in August alone. The International Herald Tribune reports:

Itoh [a homemaker in Nagoya] recalled that she had wanted to cry as she watched the yen jump as much as 5 percent in value in a single day, Aug. 16.

“But I had to keep a poker face, because my husband was sitting behind me,” Itoh said. She did not sell her position, thinking the yen would fall again. But by the next morning, only $1,000 remained in her account, she said.

Itoh lost almost all of her family’s $100,000 savings. And she certainly isn’t alone. These women—known generically as “Mrs. Watanabe”—have emerged as a powerful influence on currency markets, not only shaking conventional views about Japanese women, especially housewives, but earning them plenty of money in the process. But as Masafumi Yamamoto, a currency economist at Tokyo’s Nikko Citigroup, notes succinctly, “Mrs. Watanabe got burned this time.” Despite the setback, recent data indicate that online trading is regaining some of its momentum. But it remains to be seen whether all the Mrs. Watanabes can regain their losses.