(Bloomberg) — Japan’s normally risk-loving day traders are abandoning the Turkish lira in droves, with some forced to sell their positions as the currency plunged to a record low this week.
Retail investors cut their bullish bets on the Turkish currency to the lowest since February, some 44% below a mid-October peak, according to the latest data from Tokyo Financial Exchange Inc. About 30% of recent order flow was forced selling, which picked up when the lira fell below 9 yen, said Takuya Kanda, general manager at Gaitame.com Research Institute in Tokyo.
The lira fell to as low as 8.5 yen Tuesday and traded just above 9 yen on Wednesday. The currency has slumped about 35% against its Japanese peer this year as President Recep Tayyip Erdogan’s intensifying campaign for lower interest rates plunges the country deeper into crisis.
“Japanese day traders are no longer keeping their bullish wagers on the lira, with other high-yielding currencies such as the Mexican peso and the New Zealand dollar drawing their appetite away from Turkey,” Gaitame.com’s Kanda said. “There will surely be dip buyers when the currency cheapens, but unlike in the past, it won’t be a collective action.”
Japanese investors had long been attracted to the lira due to its high yields, which at almost 19% for three months compare favorably with the near 0% interest rates on offer locally. Given the day traders’ waning interest, the lira’s plunge won’t lead to a sharp drop in dollar-yen as has been seen in the past, Kanda said.
The yen weakened beyond 115 per dollar for the first time in four years on Tuesday, as the renomination of Jerome Powell as Federal Reserve chair fueled bets the U.S. may tighten policy more quickly than currently anticipated.
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