What is 'Mrs. Watanabe'?

Mrs. Watanabe describes the archetypical Japanese housewife who seeks the best use of her family’s savings. Though historically risk-averse, Mrs. Watanabe became a surprisingly big player in currency trading during the past decade to combat low interest rates in Japan. See also “Japanese Housewives.”

BREAKING DOWN 'Mrs. Watanabe'

Mrs. Watanabe connotes a family matriarch, and more broadly represents any Japanese retail investor.  In the early 2000s, Japanese women began trading in the currency markets in response to low interest rates in Japan. Some analysts believe that the currency markets benefited from their activities because the investors timed the markets well. Culturally, smaller Japanese investors have sought safe investment options, but low interest rates since the 1990s have led many to become active in the so-called carry trade that lasted throughout Japan's Lost Decade and Lost Score.

Japan’s Lost Decade

Japan’s Lost Decade was a period of stagnation following the country’s asset bubble collapse in the early 1990s. While the term originally referred to the years 1991 through 2000, the decade between 2001 and 2010 is often also included. The entire period has now become known as the Lost Score or the Lost 20 Years.

The Lost Score led to a deflationary environment that continues to persist. Despite low interest rates, companies appear unwilling to lend money and consumers are reluctant to spend money, which exacerbates the problem.

Japan has the highest debt levels as a percentage of gross domestic product in the world at over 240% following efforts to run a fiscal deficit to spur inflation. Prime Minister Shinzo Abe attempted to remedy the problem by implementing his Abenomics​ policies, but the effects of the policies are fizzling out as 2020 approaches.

What is a Carry Trade?

The carry trade is a form of speculation where investors borrow a low-cost currency like the Japanese yen and buy a high-growth currency to net a profit. In the past, Japanese housewives accumulated Australian dollar deposits, which yielded significantly higher rates than they could achieve with Japanese yen. Carry trades may also occur with other currencies as long as the yield of the foreign currency is higher than the Japanese yen.

The Bank of Japan has actively fought currency strength by intervening in the currency markets, which had made the carry trade attractive in the past. However, since the 2008 financial crisis, many developed countries have experienced low interest rate environments, which has reduced carry trade opportunities. Japan still maintains one of the lowest interest rates in the world, but the profitability of the trade has greatly diminished.

 

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