By Kosuke Goto
July 31 (Bloomberg) -- Japanese individual investors bought record amounts of Australian and New Zealand dollars on the Tokyo Financial Exchange yesterday, as gains in the yen made the higher-yielding currencies cheaper.
Pensioners, housewives and businessmen also bought the southern hemisphere currencies after rising global equities improved their appetite for riskier investments. The Bank of Japan's target lending rate of 0.5 percent is the lowest among industrialized economies.
``Japan's absolute interest-rate disadvantage matters, prompting retail investors to buy high-yielding currencies on dips,'' said Tomoko Fujii, head of economics and strategy for Japan at Bank of America Corp., the second-largest U.S. lender. ``With the market turmoil calming down, Japanese individuals' risk appetite is improving.''
The difference in the number of wagers by Japanese individual investors on an advance in the Australian dollar compared with those on a drop -- so-called net longs -- rose to 92,009 contracts yesterday, the most since July 2006 when Japan's largest financial futures market started collecting data.
Net-long positions on the New Zealand dollar against the yen reached a record 204,647 contracts. The contracts are denominated in 10,000 units of the foreign currency. Holdings of six major currencies, excluding the U.S. dollar, also reached an all-time high of 340,420 contracts.
The exchange's share of so-called margin trading, borrowing money to buy and sell currencies, was 8.6 percent in 2007 based on figures from the Financial Futures Association of Japan.
Yen Appreciation
The Australian dollar fell to a two-week low of 101.72 yen today after a government report showed retail sales dropped the most in six years, adding to signs the economy is slowing. It last traded at 101.88 yen as of 6:51 a.m. in London from 102.11 yen late yesterday in New York.
Against the New Zealand dollar, the yen climbed to 78.96 yesterday, the highest since May 12, as central bank Governor Alan Bollard said borrowing costs ``have room to fall.'' It traded at 79.15 today.
Japan's currency has appreciated 1.1 percent versus the Australian dollar and 0.8 percent against the New Zealand dollar in the past five days as funds reduced so-called carry trades.
In such trades, investors secure funds in countries with low borrowing costs, and buy assets in countries with higher rates, like Australia's 7.25 percent and New Zealand's 8 percent, earning the spread between the two. The risk is that currency moves erase those profits.
Rebuilding
Six months after correctly identifying the Australian dollar as one of the best bets in the foreign-exchange market, Daiwa Asset Management Co., the biggest investor in the nation's debt, last week predicted the rally is coming to an end.
Daiwa, which holds 4 percent of the government's bonds, expects the currency to close the year at $1, after earlier forecasting a surge to $1.10. Daiwa cut its estimate as the country's benchmark S&P/ASX 200 Index of stocks dropped to a 2 1/2-year low this month and the Reuters/Jefferies CRB Index of commodities fell 13 percent from its record high on July 2.
Japanese individuals tend to buy or sell whenever currencies threaten to break out of a range. Earlier this month, they reduced net long positions on the Australian dollar, as the currency reached the strongest in eight months against the yen on July 23. Those positions fell to 36,400 contracts on July 21, less than half a then record of 79,920 contracts on July 1. They have since rebuilt those bets on gains in the currency.
To contact the reporter on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net.
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