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Japan Day Traders Creep Back Into Turkish Lira Amid Rebound

Day Traders in Japan Creep Back Into Turkish Lira as It Rebounds

Japanese day traders’ affection for the Turkish lira is getting seriously tested, with the currency’s extreme volatility leaving the hardiest speculators hanging in there.

Retail investors added net long positions in the lira by 5,444 contracts Monday, after slashing them Friday by 18,716 contracts to the lowest level since January, according to Tokyo Financial Exchange Inc. data compiled by Bloomberg.

The marginal increase may be a sign that the nation’s day traders, known for their appetite for high-yielding but risky emerging currencies, are testing the waters after the currency swung from a record low to enjoy its biggest rally against the dollar in nearly four decades. Against the yen, the lira surged 24% on Monday, the biggest daily jump since 1984.

The lira’s latest gains came after Turkey announced extraordinary measures to bolster a currency hammered in recent months by President Recep Tayyip Erdogan’s unconventional policy to use lower interest rates to combat inflation. It remains unclear if the measures, which include the introduction of a new program to protect savings from currency fluctuations, will benefit foreign investors as well. 

Japan Day Traders Creep Back Into Turkish Lira Amid Rebound

“Given that the lira’s moves are just too extreme, Japanese retail investors have turned away from it as a pure investment, leaving just short-term players in the market,” said Takuya Kanda, general manager at Gaitame.com Research Institute in Tokyo. 

But even these more aggressive speculators likely won’t actively trade the Turkish currency for a while, especially as thin pre-holiday liquidity tends to exacerbate market moves, Kanda said.

“Short-term players typically enter short lira positions, buying it back in a day, but a move like the one overnight just removes any incentive to stay in markets,” Kanda said. “Interest in lira will shrink for a while.” 

©2021 Bloomberg L.P.