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Currency volumes traded by Japanese retail investors have shrunk significantly in recent years, exchange data showed, driven by lower yen and dollar volatility and potentially reducing the retail community's impact on the broader market. Data released by the Tokyo Financial Exchange (TFX) last month showed a rebound in currency trading volumes in October from the nine-month low hit in September, thanks to heavy swings in the Turkish lira and a brief spike in dollar/yen. Volumes bounced to 2.658 million lots in October from 2.107 million lots in the previous month.

But trading volumes remained significantly below historic levels. Monthly trading volume at TFX had regularly topped 4 million lots a few years ago before beginning a decline in 2017.

"An overall drop in volatility in the foreign exchange market has contributed to lower trading volumes. The forex market has reacted less recently to events like key data releases, with other assets like equities undergoing greater volatility," said a senior official at TFX who could not be named due to company policy.

Increased volatility in prices gives investors an opportunity to make faster profits on trades. Retail investors - colloquially known as "Mrs Watanabe", a common Japanese family name - are estimated to be behind 20 to 30 percent of trading in the Tokyo foreign exchange market, according to MUFG Bank.

Data compiled by the Financial Futures Association of Japan (FFAJ), which covers the broader market, also showed trading volumes declining with retail forex margin trading volume at 265.84 trillion yen ($2.35 trillion) in September, down from a recent peak above 500 trillion yen marked at the start of 2017.

"The drop in overall retail forex market volume we have seen over the last several years is linked to the narrowing trading range of dollar/yen," said Takuya Kanda, general manager at Gaitame.Com Research Institute.

Dollar/yen enjoys the lion's share of Japan's retail currency market trades, with 71.9 percent of total over-the-counter transactions conducted in the pair during the year through March 2018, according to Gaitame.Com Research Institute.

The pair's trading range was roughly 19 yen in 2013, 20 yen in 2014 and 10 yen in 2015. The range spiked to 23 yen in 2016 when events including Brexit and US presidential elections hit currency markets. But so far this year, the dollar/yen's trading range narrowed to 10 yen from 11 yen in 2017.

Copyright Reuters, 2019


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