Welcome back. The Japanese retail investor also takes
Japan Big Bang investments hurt by dollar fall
By Chikafumi Hodo
TOKYO, Oct 9 (Reuters) - Japanese who invested abroad seeking higher yields, spurred
by ''Big Bang'' financial deregulation, have had their portfolios hit hard by the dramatic
decline of the dollar.
The dollar's 18 percent collapse this week has not only dealt a body blow to investment
values but has also forced many Japanese investors to unwind their mounting positions or
increase hedge sales, market sources said.
Dealers said special options-related selling operations, which had originated from foreign
exchange deposits and bond purchases by retail investors, may have helped spur the
dollar's sharp fall.
''I'm sure special option-linked sales stemming from private investors were one of the
factors that have deepened the dollar's wounds,'' said Noriyuki Mizukami, head of
Treasury sales at National Westminster Bank.
Mizukami said factors like hedge funds' unwinding of yen carry positions and hedge sales
by Japanese investors were also factors in the dollar's decline.
Yield-hungry Japanese retail investors have flocked into foreign instruments particularly
since the April 1 launch of the Big Bang.
Many investors have moved into foreign deposits and dual-currency bonds with options
terms, which enable investors to receive high interest rate at maturity, but only if the level
of the dollar stays above levels agreed at the time of opening an account or a launch.
Investors can face heavy losses if the exchange rate breaks below that level.
Underwriting sources said a total of about 440 billion yen ($3.72 billion) worth of such
bonds were launched between May and October, with almost all having taken heavy losses
after breaking through options levels set between 117 and 123 yen.
The yen was at 117.40 to the dollar late on Friday, recovering from a low of 111.45 set
Many of such options-linked bonds or so-called ''knock-in'' options were set up when the
dollar was moving in a range of 130-140 yen.
Domestic and foreign banks do not disclose details of customers' foreign deposits with
options attached, but many dealers estimated the amount was ''extremely large.''
A plunge in the dollar has forced Japanese investors to hedge their heavy positions in the
dollar and European currencies as many of them have been unhedged, dealers said.
Institutional investors have been building up their foreign currency positions in recent
months in the belief that the dollar's fundamentals were invincible. According to Japanese
Finance Ministry data released on Friday, net purchases of foreign bonds by Japanese
investors, based on contracts, totalled 1.2805 trillion yen in September after net purchases
of 911.3 billion yen a month earlier. Standing out were net purchases by life insurers of
foreign bonds amounting to 622.4 billion yen and foreign stocks worth 203.8 billion yen.