Here's why Japan boasts the world's most powerful force of retail traders

About 85 per cent of traders are men, mostly in their 30s, 40s and 50s, according to estimates from Gaitame.

Business Standard : Popular tales of “Mrs Watanabe” -- the canny Tokyo housewife who dabbles in currency trading in between school runs and shopping -- barely begin to tell the story of Japan’s retail traders in the foreign exchange market.

With almost 800,000 active forex accounts, Japan boasts the world’s most powerful force of retail traders. It has doubled in size in little more than a decade and spurred some of the most dramatic price moves of recent times, including the January “flash crash” that hammered the dollar and sent the yen soaring.

Contrary to the enchanting notion of “Mrs Watanabe,” most of the traders are middle-age men, who’ve been driven into the market by years of ultra-low interest rates. They toil in offices by day and trudge home to moonlight in foreign exchange, hoping to build a family nest egg in a country where banks pay savers next to nothing.

“A lot of individual investors don’t realize that they’re doing something extraordinary,” says Yasushi Takagi, a 44-year-old financial writer who started forex trading in his early 30s to supplement his earnings. “They bet heavily on high-yielding currencies like the Turkish lira, the Mexican peso and the South African rand, while many players outside of Japan wouldn’t touch them.”

Individuals generally make one transaction per day, using margin accounts to leverage modest deposits of about 100,000 yen ($930) into wagers worth 10 times that amount, said Takuya Kanda, general manager of the Gaitame.Com Research Institute, part of the country’s leading internet platform for retail investors.

Their go-to strategy is the carry trade, which typically involves selling the yen and using borrowed money from the margin account to load up on currencies from economies where interest rates are much higher.

Takagi tells of a “nagging sense of doubt” about Japan’s future that has driven people like himself to take their chances in the $6.6 trillion a day international currency market. “There are huge fiscal deficits,” he says. “We don’t know what will happen to our pensions.”

About 85 per cent of traders are men, mostly in their 30s, 40s and 50s, according to estimates from Gaitame.

While few stand out as individuals, Kanda indicated that a small band of high rollers now buy and sell currencies on the same scale as the nation’s banks, and data from the Financial Futures Association of Japan show that margin trading drives almost half of all spot transactions in Tokyo.