For evidence of Japanese retail investors’ newfound risk appetite, look no further than the foreign exchange market, where dealers estimate that about 20% of daily volume now arises from margin accounts of small investors selling yen and buying foreign currency bonds to capture interest rate differentials. The yen carry trade is still very popular in Japan itself.
While the biggest interbank FX dealers don’t deal directly with such accounts because of counterparty credit constraints, it’s a potential flow of business they are watching closely.
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