Turkey's Next Headache: Tokyo Traders' Lira Long Positions
Turkey's Next Headache: Tokyo Traders' Lira Long Positions
(Bloomberg) -- After a roller-coaster ride in its markets, the latest headache for Turkey may come from investors miles away: Japanese retail investors.
Japanese margin traders’ long positions in the lira versus the yen totaled at 317,283 as of March 28, according to data from the Tokyo Financial Exchange Inc. That’s higher than the 288,563 contracts on Jan. 2, the day before the so-called “flash crash” at the start of the year when the yen’s sudden surge sent currencies across the world to a tailspin. The Turkish currency slumped as much as almost 10 percent against the Japanese counterpart on Jan. 3.
“Foreign investors are paying respect to the authorities’ measures right now, but the latest development in Turkey could have ignited the fighting spirits of speculators, and that could take these retail investors with them,” said Takuya Kanda, general manager at Gaitame.Com Research Institute Ltd. in Tokyo. “It’s hard to think that swap rates will remain high, and when the reversal comes, it’s highly likely that the selling will start.”
Search for Yield
Japanese retail investors have been known for their appetite for higher-yielding assets such as the Turkish lira, facing near-zero interest rate at home. The build-up in the appetite also comes as Turkish banks refrain from providing liras to foreign counterparts in a currency crunch orchestrated to prevent it from sliding days before municipal elections.
The lira weakened more than 4 percent versus the yen so far this year, and reached 18.78 yen on March 22, the lowest level since Jan. 3. Gaitame.com’s Kanda sees a possibility of the currency falling below 18 yen, compared with 19.7140 yen as of 2:48 p.m. in Tokyo.
If the ruling party loses in major cities in the weekend election, it is possible President Recep Tayyip Erdogan could take populist measures to regain the support, according to Tetsuya Yamaguchi, chief technical analyst at Fujitomi Co. in Tokyo.
“There’s a risk of a sharp slump in the lira amid concerns of populist-style policies and the economy has already contracted,” Yamaguchi said. “Liquidity is quite low already and Monday morning will be quite a risk for these individual investors.”
--With assistance from Alex Nicholson.
To contact the reporters on this story: Hiroko Komiya in Tokyo at hkomiya1@bloomberg.net;Yumi Teso in Bangkok at yteso1@bloomberg.net
To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, ;Fukashi Maruta at fmaruta@bloomberg.net, Onur Ant
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