Are Mr and Mrs Watanabe preparing to return to emerging markets in a big way?
Mom and pop Japanese investors, collectively been dubbed the Watanabes, last month snapped up a large volume of uridashi bonds (bonds in foreign currencies marketed to small-time Japanese investors), and sales of Brazilian real uridashi rose last month to the highest since July 2010, Barclays analysts say, citing official data.
Just to remind ourselves, the Watanabes have made a name for themselves as canny players of the interest rate arbitrage between the yen and various high-yield currencies. The real was a red-hot favourite and their frantic uridashi purchases in 2007 and 2009-2011 was partly behind Brazil's decision to slap curbs on incoming capital. Their ardour has cooled in the past two years but the trade is far from dead.
With the Bank of Japan's money-printing keeping the yen weak and pushing down yields on domestic bonds, it is no surprise that the Watanabes are buying more foreign assets. But if their favourites last year were euro zone bonds (France was an especially big winner) they seem to be turning back towards emerging markets, lured possibly by the improvement in economic growth and the rising interest rates in some countries. And Brazil has removed those capital controls.
The breakdown of last month's data shows that real-denominated uridashi issuance in gross terms represented more than half the total. Another winner this year has been the Mexican peso -- peso uridashi accounted for almost 300 billion yen ($2.91 billion) of issuance as reforms have boosted Mexican assets. Almost 200 billion yen worth of uridashi sales have been in real (compared to over 400 billion back in 2011).
The other old Watanabe favourites, the Kiwi and Aussie dollars, are faring less well this year. Aussie uridashi, which topped the list in 2011, have seen redemptions of around 500 billion yen in 2013. See the Barclays graphic above.