TOKYO -- The Turkish lira's plunge has dealt a blow to Japanese individual investors who had snapped up bonds and mutual funds denominated in the currency, possibly forcing them to rethink the strategy of chasing emerging-market products promising high yields.
The Turkish currency was among the most popular among Japanese retail investors -- collectively known as Mrs. Watanabe, alongside such other emerging-country favorites as the South African rand. Trading volume between the lira and the yen has been climbing since May, when the lira began to slide rapidly, with the figure reaching 1.4 trillion yen ($12.6 billion) as of June.
Japanese currency traders, who tend to be contrarian, continued to buy the lira even as it lost value. But the currency's crash since last week has forced many to cut their losses or face margin calls.
"We saw many Japanese retail investors sell the lira for the yen" as the Turkish currency renewed a record low early Monday, said Yoshifumi Takechi of Money Partners. Large forex brokerages have urged stepped-up risk management since the weekend, such as through reducing leverages or increasing margins.
Traditionally safer investments have also been affected. Japanese brokerages managed 52 mutual funds either in Turkish stocks or denominated in lira, with the balance totaling about 250 billion yen as of Friday, according to the Nikko Research Center. The price of a lira-denominated European-bond fund by Amundi Japan dropped 23% over the past three months.
In addition, the recent balance of lira-denominated bonds stood at about 210 billion yen, according to information company Imperial Finance & Technology. Japanese investors could be even more exposed when taking into account debt issued overseas that is sold through Japanese brokerages.
Lira-denominated instruments became popular for their high yields. Even now, there are bonds on offer at major online brokerages with an anticipated annual return exceeding 20%. But the currency's decline could mean negative actual returns in yen.
Many Japanese banks have also suspended trading in the lira, posing problems for travelers headed to Turkey.