In most societies, it is patriarchs who are tasked with overseeing major financial decisions. However, not in Japan, whereby matriarchs have proven to be highly reliable and effective in managing a household’s financial wellbeing and generating significant returns in the process.
Japanese Housewives is a commonly used term in the financial industry that denotes the ever-increasing number of Japanese women participating in the foreign exchange market. For the longest time, women in the island nation have been at the forefront of investing in the currency market for higher returns.
Japanese Housewives’ influence in the financial system dates back to the Edo period. During this period, they were tasked with running household affairs, which also included making crucial financial decisions on behalf of the family.
In the early 1990s, the island nation experienced a massive bubble burst, leading to horrible financial outcomes. Economic stagnation led to record low-interest rates resulting in what has come to be termed as the ‘Lost Decade.’
During this period, money saved in local banks stopped earning interest, as national banks offered zero percent interest. Keeping money in the banks turned out to be the same as holding cash at home. Concerned by the lack of earnings on savings in local banks, Japanese homemakers thought outside the box and started exploring ways of earning some interest on their savings.
The search for new investments resulted in most of them seeking investment opportunities outside the land of the rising sun. Instead of saving, most of them ended up investing in foreign markets amid the urge to grow money saved.
Similarly, most of them ended up investing in collateralized debt obligations. However, as most of them ended up investing in foreign financial instruments, capital outflows had a negative impact on the yen. The yen conversely tanked to 20-year lows.
While acting as custodians of savings accounts, it was later discovered that Japanese Housewives’ accounts increased significantly. As of the 2000s, the accounts had ballooned to over $13 trillion in holdings.
Japanese housewives’ involvement in currency trading in the early years was fuelled mainly by the record low-interest rates, making it impossible to generate returns on savings.
The rise of carry trade
As the Japanese housewives pursued foreign investments, most of them ended up investing using margin accounts. Besides, they undertook carry trades whereby they borrowed on low-interest-rate currencies and invested in high yield assets.
Taking advantage of Japan’s record low interest rates, the matriarchs borrowed money at low interest rates on the yen. The money was then invested in high-growth high-yield currencies such as the Australian and New Zealand dollar.
The women quickly realized it was profitable to borrow at low fees in the first case and get high payments on investing in high-yield currencies. Profiting from differences in rates became the new trend as opposed to saving cash at home or in local banks.
Statistics clearly show that the value of traded currencies by Japanese women was approximately $9.1 billion, with almost a fifth of the amount being traded during the Tokyo trading session.
Carry trade example
The most famous carry trade involved in Japanese yen and the Icelandic krona. In the 1990s, Japan had one of the lowest interest rates that remained below the 1% level for over a decade. During the same period, the Icelandic Krona was backed by one of the highest interest rates at about t 18%.
The interest rate disparity between the two economies gave rise to one of the biggest carry trades. The carry trade was especially popular among Japanese homemakers as most of them had lots of cash in Japanese yen that they were looking to invest in high-yield investment products.
With cash already denominated in yen, most homemakers invested in the Icelandic krona, conversely taking advantage of the 18% interest rate on offer. While the result was a spike in yen-denominated purchases, the yen retained its stability as most of them were being re-sold almost immediately.
The carry trade impact
In addition to playing a key role in currency trading, the housewives also had an apparent impact on the country’s financial system. For instance, in 2007, as the financial crisis was just but starting, it is believed that the housewives played a key role in helping stabilize the country’s currency markets. According to the Bank of Japan, the matriarch’s tendency to buy on the dip and sell on the high helped bring some stability to the yen.
Japanese housewives 2.0
Fast forward, the Japanese Housewives are still a key player and the catalyst behind the country’s robust financial system. Their role has increased in recent years, with Japan legalizing Bitcoin as a legal form of currency for trading purposes.
According to a report by the Deutsche Bank, Japan’s matriarchs are the fuel behind the burgeoning cryptocurrency trading in Japan. Most of them have resorted to investing in digital assets taking advantage of the significant price swings being experienced in Bitcoin and other cryptocurrencies.
As early as 2017, about 40% of all the operations involving cryptocurrencies involved the Japanese yen. It is still unclear whether the Japanese matriarchs were the catalyst behind the increased trading volume as most of them remain invested in the global financial system.
The impact of Japanese homemakers cannot be taken for granted, given their role since the financial bubble of the 1990s. Having started investing in the local markets, they have expanded their operations to pursue high returns in the global markets.
Likewise, they have become a big inspiration to many people worldwide, given the kind of returns they have generated over the years. Similarly, their role and activities that have led to the Japanese yen’s stabilization are also worth acknowledging.