Japanese Investors Return to the Turkish Lira Despite Previous Heavy Losses
Despite suffering serious losses in the past, Japanese individual investors have once again turned their attention to the Turkish lira. The lira, which has lost more than 16% of its value against the yen this year, has become one of the most traded assets among risk-hungry day traders in Tokyo.
According to data from the Tokyo Financial Exchange, as of November 12, approximately 900,000 futures margin contracts linked to the lira-yen pair have been opened. This figure is hovering near its all-time highs. Experts are cautioning that the expectation of high returns could potentially lead investors into the risk of another collective loss.
The Japanese harbor excessive expectations for income.
The total value of daily investors' positions in lira stands at 32.8 billion yen (approximately 212 million dollars). However, the continuous depreciation of the lira makes this amount appear smaller than the actual investment size.
While investors seem to have forgotten previous severe losses, experts are drawing attention to the risk of a new 'blowout'. For instance, on March 19, following the arrest of Ekrem İmamoğlu in Turkey, the lira lost 11 percent of its value in a single day. Long positions in lira-yen, on the other hand, plunged by 26 percent, marking the sharpest daily loss since 2018.
Why is the Turkish Lira being favored?
Investors' interest in the Turkish lira is driven by its high yield potential. The lira, against the yen, generates an annualized gain of over 30% for the three-month period, while local returns in Japan remain below 1% during the same timeframe.
Other carry trade opportunities, such as the Brazilian real, may outperform the lira in spot returns. However, when it comes to interest yields, they lag considerably behind the Turkish lira.
Investors are content, yet experts are sounding the alarm.
Masahiro, an amateur investor from the Hyogo region in Japan, aged 41, reveals he follows a strategy entirely based on timing:
'On days when the Lira is strong, I sell, and when it weakens, I buy back. The longer you hold, the more profit you make.'
Moreover, Masahiro takes into account the possibility of Japan intervening in the money market. Last week, the Yen reached a level of 155 against the dollar and could suddenly strengthen with potential intervention, showing a rapid rise against all currencies. Masahiro's plan is clear-cut: 'I'll exit before the intervention comes.'
However, experienced analysts point out that such timing strategies often end in disaster for most investors. Matthew Ryan, Director of Market Strategy at Ebury, emphasizes the serious risk posed by Japan's foreign exchange intervention:
'The biggest enemy of short Yen positions is direct foreign exchange intervention. A sudden turnaround could wipe out carry trade positions in a matter of seconds.'
What are the repercussions for Turkey?
Although progress has been made in combating inflation in Turkey, the annual inflation rate for October stands at 32.9%. Furthermore, the increasing interest in gold and its rising value are complicating matters for economists.
Despite these challenges, the Turkish economic administration continues to pursue a 'real appreciation' strategy, where the lira loses value under inflation. Mehmet Şimşek, the Minister of Treasury and Finance, had previously stated that carry trades are still attractive.
Takanori from the Niigata region, despite having suffered losses during previous sharp downturns, admits that he couldn't resist the opportunity for high returns:
'I've made up for my past losses, I'm in the positive now. I'm earning about 10% monthly.'
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