GBP/JPY: Japanese are Becoming Net Sellers

Carry trades use to be one of the most popular trading strategies for retail forex traders, but in the past year, that has changed significantly. The Japanese have always been the biggest buyers of carry trades but having been burned significantly, they are finally starting to cut their losses. According to the latest data from the Tokyo Financial Exchange (TFX), one of Japan’s largest retail FX brokers, traders have become a net seller of GBP/JPY (Related: Japanese Retail FX Positioning).

After hitting a high above 250 in July 2007, GBP/JPY has fallen 48 percent. The positioning data suggests that the Japanese have been sitting with their long carry trade positions for as long as they can and now that interest rate differentials have compressed so significantly, they are finally bailing. At TFX, 69 percent of all GBP/JPY transactions as of Feb 3, 2009 is to sell the currency pair.

Although, many of the other yen crosses have also depreciated significantly over the past year, Japanese investors have been hesitant of shorting carry trades aggressively because they still have to pay interest on any short positions. With GBP/JPY however the interest rate differential rate differential is falling and falling fast. As the cost of shorting carry trades fall, we could see more interest from Japanese retail traders. In the meantime however, for the pairs that still have higher interest rate differentials like AUD/JPY and NZD/JPY, short positions will not be held long.

Image: TFX

About Kathy Lien 236 Articles

Kathy Lien is an Internationally Published Author and Chief Strategist of DailyFX.com, one of the world’s most popular online websites for currency research. Her trading books include the highly acclaimed, Day Trading the Currency Market: Technical and Fundamental Strategies to Profit form Market Swings (2005, Wiley); High Probability Trading Setups for the Currency Market E-Book (2006, Investopedia); and Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game (2007, Wiley). As Chief Currency Strategist at FXCM, Kathy is responsible for providing research and analysis for DailyFX, the research arm of FXCM. She also co-edits the BK Forex Advisor, an Investopedia.com Premium Service with Boris Schlossberg – one of the few investment advisory letters focusing strictly on the 2 Trillion/day FX market.

Kathy is also one of the authors of Investopedia’s Forex Education section and has written for Tradingmarkets.com, the Asia Times Online, Stocks & Commodities Magazine, MarketWatch, ActiveTrader Magazine, Currency Trader, Futures Magazine and SFO. She is frequently quoted by Bloomberg, Reuters, the Wall street Journal, and the International Herald Tribune and has appeared on CNN, CNBC, CBS and Bloomberg Radio. She has also hosted trader chats on EliteTrader, eSignal and FXStreet, sharing her expertise in both technical and fundamental analysis.

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