IYI - Mrs. Watanabe - Japan's Housewife Currency Traders

As I was plugging along at work one day I looked up from my computer to see a group of 30 or so middle aged Japanese women standing around looking at me. I'm not entirely sure what they were saying but I imagine it was something along the lines of "one of these is not like the others," and they found it amusing.

The group of women were being given a tour of our office, and were followed by another equally large group of women a few minutes later. A bit confused as to what was going on I turned to a coworker to ask who they were.

"Agents" he said, meaning our primary insurance and financial planning sales force

"They're all women?" I asked, a bit surprised as in the US this was a traditionally male dominated position.

As it turns out financial planners in Japan are overwhelmingly female, because househbold finances are usually managed by women. The typical サラリーマン (sarariiman or salaryman) is only trusted with a small monthly allowance.

Even more surprising is how many of these housewives mange their money, by becoming day traders in currency markets. These so called "Mrs. Watanabe," try and earn a little (or a lot) extra on the side by betting on the movements of exchange rates. See this Reuters report for background.

Unfortunately the etymology of this term has evaded my furious googling efforts.

Mrs. Watanabes are a big deal in currency markets. It's been a bit difficult to track down exact estimates but most sources I've seen attribute 30% of the volume of daily currency trades to individual Japanese traders, the majority of which is done by women.

The major factor driving Mrs. Watanabe to the FX markets has been the persistent low interest rate environment in Japan over the past two decades, combined with low equity (stock) returns, which means there aren't a lot of options for domestic Japanese investment with decent safe returns.

The so called "carry trade" is an investment strategy where you borrow money in a currency where interest rates are low, and invest it in a currency where interest rates are high. It's generally viewed as a high risk strategy because exchange rates are notoriously volatile. But the strategy was and is popular with the financial cowboys running hedge funds in the US and Europe. It turns out that this strategy is widely employed by your average investor in Japan, with Mrs. Watanabes leading the way. Even my company offers consumer financial products denominated in foreign currencies to take advantage of this trend.

I find it fairly amusing that the exchange rate movements caused by the massive amounts of money sent around the globe by these amateur housewives has routinely confounded professional analysts and has led a lot of the "master of the universe" types in NYC and London to lose lots of money. This happened notoriously in the mid 2000s when the Yen refused to appreciate despite improving economic output in Japan, and most recently after the 3/11 earthquake.

After the earthquake almost all the professional analysts expected the Yen to fall in value relative to other currencies. Japan after all was experiencing a major economic catastrophe. But what they didn't count on was the horde of Mrs. Watanabe's suddenly needing the cash they had invested overseas to deal with the emergency, this actually triggered a "flash crash" or spike in the yen when the news out of Fukushima worsened. This was investigated by the WSJ here.

Basically as everyone was going to sleep in NYC and London, all these people woke up in Japan and suddenly electronic markets were flooded with Yen buy orders, 90% of them for values less then $100,000 - a much lower value then a bank or professional traders would put in- and the value of the Yen shot up to a 16yr high against the U.S. dollar. Now in off hours a lot of traders employ stop loss orders to try and limit their losses automatically when they aren't around to trade. This sudden move in Japan caused many of those limits to be hit which further compounded the trend.

I haven't been able to find any statistics on how well these housewife currency traders have performed on average. It's easy to find reports like the one above on some people who have done very well for themselves, but I'm sure there are just as many stories of people who have ruined themselves as well. It you get enough people all flipping coins, someone gets heads 100 times in a row, and someone tails. I wouldn't advise it as an investment strategy, even if you think you know what you're doing there's likely some other force on the far side of the globe influencing things in ways you don't understand - like Mrs. Watanabe.