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

Author

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  • Tomohiro Niimi

    (Bank of Japan)

Abstract

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.

Suggested Citation

  • Tomohiro Niimi, 2016. "Recent Trends in Foreign Exchange (FX) Margin Trading in Japan," Bank of Japan Review Series 16-E-5, Bank of Japan.
    • Handle: RePEc:boj:bojrev:rev16e05
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    File URL: http://www.boj.or.jp/en/research/wps_rev/rev_2016/data/rev16e05.pdf
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    Cited by:

    1. Alain Chaboud & Dagfinn Rime & Vladyslav Sushko, 2023. "The foreign exchange market," Chapters, in: Refet S. Gürkaynak & Jonathan H. Wright (ed.), Research Handbook of Financial Markets, chapter 12, pages 253-275, Edward Elgar Publishing.

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    Keywords

    Foreign Exchange Margin Trading;

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