February 9, 2016 / 11:11 PM / in 2 years

Mrs Watanabe loses faith in Abenomics, turns bullish on yen

A teller counts Japanese yen to exchange them into U.S. dollars at a foreign exchange booth at a business district in Tokyo in this November 26, 2009 file photo. REUTERS/Kim Kyung-Hoon/Files

TOKYO (Reuters) - Japanese retail traders have turned bullish on the yen for the first time in 2-1/2 years, a telling sign they are losing confidence over government efforts to cheapen the currency.

The change in sentiment comes as more investors globally question whether Japan’s efforts to reflate the economy - known as Abenomics - has failed, and if its one clear effect, a weakening in the yen, has run its course.

Now, large numbers of retail foreign-exchange traders, popularly known as Mrs Watanabe, could fuel more upward momentum in the Japanese currency.

Mrs Watanabe has long benefited from selling the yen JPY=, as Prime Minister Shinzo Abe’s reflationary policies and the Bank of Japan’s (BOJ) quantitative easing measures added downward pressure on the currency since late 2012.

But those days may be gone, with even the BOJ’s shock decision on Jan. 29 to adopt negative interest rates failing to reverse their outlook.

“Japanese individual investors don’t look like they will be bullish on the dollar and bearish on the yen any time soon, as far as recent market moves go,” said Takuya Kanda, senior researcher at Tokyo’s Gaitame.com Research.

Data compiled by the Financial Futures Association of Japan show retail margin trading volume in 2015 averaged 465 trillion yen ($3.93 trillion) a month, or roughly $186 billion per day.

The Bank of International Settlements estimates global spot foreign exchange market turnover at around $2 trillion per day. The yen climbed to a 15-month high of 114.205 to the dollar on Tuesday, bouncing back from near 122 yen after the BOJ’s action as investors sought refuge in the safety of the yen on growing concerns over the health of the global economy.

For a long time, Mrs Watanabe had been betting against the Japanese currency on the view that the BOJ’s aggressive money printing would devalue the yen.

But their reaction to the BOJ’s latest gambit into negative interest rates was surprisingly muted.

“It suggests that individual traders think the dollar will have a difficult time rising even after easing by the BOJ,” he said.

Even before the BOJ’s easing, Japanese traders were the most bullish on the yen in about 2-1/2 years.

According to a monthly survey of roughly 900 margin traders compiled by leading Japanese margin trading platform provider Gaitame.com, their “dollar/yen forecast diffusion index (DI)” turned negative in January for the first time in 31 months.

Still, Mrs Watanabe is long known to be a contrarian trader and some individual traders appear ready to buy the dollar on dips amid the highly volatile market conditions.

“Our gauge of individual investor sentiment often points to a rise in dollar/yen demand after large price falls,” said Junichi Ishikawa, market analyst at IG Securities in Tokyo. “This shows that individual dealers bargain hunt for potential profit taking, although such strategy may not always end in success in the current environment.”

Additional reporting by Noriyuki Hirata; Editing by Jacqueline Wong

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