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Recent Trends in Foreign Exchange (FX) Margin Trading in Japan

August 22, 2016
Tomohiro Niimi*
Financial Markets Department

  • Currently at the Personnel and Corporate Affairs Department

Foreign exchange (FX) margin trading in Japan has an enormous impact on the recent Tokyo FX market. The common characteristics of Japanese FX margin traders are as follows: (1) they are contrarians who contain FX rate fluctuations, except in cases of dramatic FX rate swings and (2) they are sellers of the yen and buyers of foreign currencies who sometimes exacerbate FX rate swings in times of yen's rapid appreciation, through a forced liquidation of positions under loss cutting rules. FX margin trading in the past several years has witnessed the prevalence of high speed/frequency trading among individual investors called "scalping," as the bid-offer spread has tightened. In addition, the "Swiss franc shock" in January 2015 has brought about changes in the way FX margin trading intermediaries manage their risks. In order to analyze the FX market, it is important to closely monitor the features, trends, and changes in positions of FX margin trading.

Notice

Bank of Japan Review is published by the Bank of Japan to explain recent economic and financial topics for a wide range of readers. This report, 2016-E-5, is a translation of the original Japanese version, 2016-J-9, published in June 2016. The views expressed in the Review are those of the authors and do not necessarily represent those of the Bank of Japan.

If you have comments or questions, please contact the Foreign Exchange Division, Financial Markets Department.