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DEFINITION of 'Japanese Housewives'

Japanese housewives, in the foreign exchange world, is a collective term for the legions of Japanese matriarchs who resorted to currency trading in the first decade of the new millennium. With Japanese interest rates near zero percent for most of the decade, their motivation for currency trading was to increase the returns on their portfolios. These homemaker-traders are also called "Mrs. Watanabes."

BREAKING DOWN 'Japanese Housewives'

Japanese housewives have had a discernible impact on currency markets. Bank of Japan officials said in 2007 that the housewives' trading activity helped to stabilize currency markets because of their tendency to buy on dips and sell into rallies. A significant amount of this trading was carried out through online margin accounts, which offered leverage of 20 to 100 times. Carry trades, which involve borrowing in low-interest rate currencies and investing in higher yield assets, were also a favored strategy of the Japanese housewives. The term "Japanese housewives" has also been used to describe day traders.

Carry Trades

During the height of their popularity, Japanese housewives typically dealt with carry trades. A carry trade is one in which an investor borrows money at a low interest rate and then invests it into an asset likely to provide a higher return than the interest on the borrowed funds. In currency trading, Japanese housewives bought Japanese yen at low rates and traded it at a profit for a high-growth currency such as the Australian dollar.

History of Japanese Housewives

Historically, as far back as the Edo period, Japanese housewives were charged with running the household which also included making major financial decisions. They acted as the custodians of their families' immense savings accounts, and after World War II, these accounts started growing. By the 2000s, they were worth nearly $16.8 trillion collectively. Some of this money was stored in cash at home, and some of it was stored in banks. Unfortunately, at the time, the Japanese national banks offered zero percent interest, which drove the housewives to invest.

In the early 2000s, the so-called Japanese housewives began searching for larger returns than they were receiving from local banks. They quickly changed from a savings culture to an investment culture, and in most cases, they opted to invest in foreign markets, dabbling in investments such as collateralized debt obligations. The outpouring of yen from Japan resulted in the currency falling to a 20-year low in 2007, even after adjustments for inflation.

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