Global Investing has written several times about Japanese mom-and-pop investors’ adventures in emerging markets. Most recently, we discussed how the new government’s plan to prod the Bank of Japan into unlimited monetary easing could turn more Japanese into intrepid yield hunters. Here’s an update.
JP Morgan analysts calculate that EM-dedicated Japanese investment trusts, known as toshin, have seen inflows of $7 billion ever since the U.S. Fed announced its plan to embark on open-ended $40-billion-a-month money printing. That’s taken their assets under management to $67 billion. And in the week ended Jan 2, Japanese flows to emerging markets amounted to $234 million, they reckon. This should pick up once the yen debasement really gets going — many are expecting a 100 yen per dollar exchange rate by end-2013 (it’s currently at 88).
At present, the lion’s share of Japanese toshin holdings — over $40 billion of it — are in hard currency emerging debt, JP Morgan says (see graphic).
But if developed central banks’ seemingly endless money-printing starts to significantly inflate emerging currencies again, local currency debt is likely to become more attractive.
Just a rough example. If Mrs Watanabe, as Japanese retail investors have collectively been dubbed, had sold her yen at the start of last year to buy dollars, she would have made a healthy 15 percent return as the yen weakened. But if she had bought Korean won, she would have gained over 21 percent.