TOKYO -- Foreign exchange trading by individuals in Japan topped 5 quadrillion yen ($46.8 trillion) for the first time in fiscal 2015, setting a fourth straight record, as sharp swings in the Japanese currency drew profit-seeking retail investors.
The volume of these traders' transactions grew 18% to 5.52 quadrillion yen, data from the Financial Futures Association of Japan shows. Dollar-yen transactions made up about 60% of the total, with growth also seen in Aussie dollar and euro trading volume.
Foreign exchange trading lets investors use leverage to move large quantities of currency with a small initial investment. Traders profit from currency shifts and interest rate differentials between countries.
Japan is believed to account for as much as 30% of the global foreign exchange market. The country's retail foreign exchange traders, popularly known as "Mrs. Watanabe," are a force to be reckoned with.
Forex traders have a growing variety of options. The old mainstream strategy involved selling yen and buying other currencies to capitalize on Japan's comparatively low interest rates, but this has fallen out of favor since the financial crisis as interest rates have sunk worldwide.
More retail traders now watch currency trends rather than interest rates, buying yen to profit from the currency's appreciation this year. The yen rallied beyond 106 to the dollar at one point Tuesday, its strongest in about a year and a half.
"Yen buying among individuals is brisk on the view that yen appreciation will continue," said Takuya Kanda, senior researcher at Gaitame.com Research Institute.
Selling by retail traders is not picking up, and many argue this is doing little to curb the currency's rise. Many individuals aggressively bought yen in late April, when the currency strengthened as much as 3 to the dollar on some days, apparently piling on further upward pressure.
Unlike stock markets, foreign exchange trading is available 24 hours a day. The spread of smartphones has fueled late-night trading by office workers after they return home. Brokerages have cropped up offering trades involving currencies such as the South African rand and Turkish lira.
But some individuals likely lost money after missing the boat on the yen's appreciation. With bets on a further rally likely to mount, risk management is a concern.
Japanese law was revised in 1998 to allow foreign exchange trading by individuals. But lax regulation at the time encouraged a proliferation of shady dealers misappropriating customer assets, leading investors to steer clear.
New rules introduced in 2010 limit leverage in a bid to rein in speculation. Another provision requires losses to be cut beyond a certain point to mitigate damage from sharp market swings.
Though leverage was capped at 25-1 for individuals in 2011, incorporated entities face no such restriction. As a result, retail investors sometimes trade in the guise of corporations, a foreign exchange source said. Japan's Financial Services Agency plans to impose a leverage ceiling on companies as early as 2017.