TOKYO -- Individual investors continue to unload yen for dollars in margin trading despite the recent strengthening of the Japanese currency, feeding expectations that it will stay weak in the medium to long term.
Customers at nine major forex companies surveyed by QUICK Corp. held a total of $5.92 billion in open yen-short, dollar-long positions as of Friday. The figure rose 40.4% from the end of the previous week to mark a three-month high.
Their expectations are backed by strong real demand. The Ministry of Finance announced Monday that Japan logged a record trade deficit of 11.47 trillion yen ($111.05 billion) in 2013. The soft yen and the higher oil and natural gas imports due to the idling of nuclear reactors contributed to the deficit.
"It's unlikely that the yen will start to strengthen, since importers will need to sell yen to obtain dollars, keeping the currency weak," says Takako Masai, head of markets research at Shinsei Bank.
But with so many yen-short positions open, if the currency stages a bigger-than-expected upswing, investors may unwind their positions en masse to minimize losses, accelerating the upturn.
In foreign currency markets, the yen touched 101.77 to the dollar early Monday morning Japan time -- its strongest level since Dec. 6. It ended the week in the lower 102 range but appreciated rapidly after 7 a.m., when trading starts at many forex firms.
The Australian market is closed, leaving fewer participants overall. Individual investors facing margin calls have been forced to cut their losses, which has led to broader price swings amid thin trading.
"When the yen strengthened past 104 to the dollar, more retail investors lost confidence in their predictions of a weak yen and began to hold back on buying the dollar," says Takuya Kanda of the Gaitame.com Research Institute.