Yen Sales by Tokyo Individual Investors at Highest Since August

By Kosuke Goto

July 2 (Bloomberg) -- Yen sales by Japanese individual investors on the Tokyo Financial Exchange reached the highest since August yesterday as they bet the currency will extend its worst quarterly loss against the U.S. dollar since December 2001.

Housewives, pensioners and businessmen accelerated purchases of foreign currencies as this week's gain in Japan's currency provided an opportunity to buy higher-yielding assets in Australia and New Zealand at cheaper levels. The highest yen sales in almost 11 months came as a Bank of Japan business confidence survey raised speculation the central bank will need to keep its benchmark interest rate at 0.5 percent this year.

``Japanese individuals, with a money glut, are increasing risk appetite and prompting yen-selling,'' said Tomoko Fujii, head of economics and strategy for Japan at Bank of America Corp., the second-largest U.S. bank. ``They know Japan's ultra- low interest rates will go nowhere anytime soon. Their yen sales contribute to stem any sharp appreciation of the yen.''

Net short positions on the yen against seven major currencies, including the U.S. and Australian dollars, rose to 334,369 contracts among so-called mom-and-pop traders yesterday, the highest since Aug. 15, data showed.

Record Longs

Investors increased net long positions on Australia's currency to a record 79,920 contracts and on New Zealand's currency to an all-time high of 148,249. A short position is one that bets on a currency falling while a long position is a bet that an asset price will rise.

The yen traded at 106.05 per dollar at 7:58 a.m. in London from 106.13 in New York yesterday. The currency, which declined 6 percent in the second quarter, may fall to 108 a dollar by the end of September, Fujii forecast.

The Japanese currency fell to 102.07 against the Australian dollar from 101.35 yesterday, when it climbed to 100.25, the strongest level since June 4. Against the New Zealand dollar, the yen traded at 80.40 from 80.39.

Japan's benchmark rate is the lowest among major economies, making assets outside of the country more attractive to domestic investors. Australia's interest rate is 7.25 percent and New Zealand's 8.25 percent, making the nations' currencies favorite targets for so-called carry trades.

The exchange's data signals Japan's individual investors may be resuming carry trades after reducing their positions as some higher-yielding currencies depreciated in the past year due to the U.S. subprime crisis.

In carry trades, investors secure funds in countries with low borrowing costs, and buy assets in countries with higher rates earning the spread between the two. The risk is that currency moves erase those profits.

So-called margin trading of currencies in Japan using borrowed funds rose 86 percent in the first quarter to a record 213 trillion yen ($2 billion), figures from the Financial Futures Association of Japan showed in May.

Japanese households have 1,490 trillion yen in financial assets, according to the Bank of Japan.

``This foreign-exchange margin trading industry is still growing,'' Bank of America's Fujii said.

To contact the reporters on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net