For those have never heard of “Mrs. Watanabe”, it may be surprising to learn that the boom in personal forex trading was in fact pioneered by a generation of Japanese housewives in the 1990s.
Collectively dubbed the “Mrs. Watanabes” (a regional equivalent of “Mrs. Smith”: denoting an archetype of the average housewife), these stay-at-home traders were a genuinely groundbreaking phenomenon in female entrepreneurship.
Yet, for a long time, they went completely unnoticed: often, even by their own families.
Why Japan? The collapse of the Japanese asset bubble in the early 1990s led to a stagnant economy, with low interest rates, and a slowdown in wealth creation.
The Mrs. Watanabes were motivated to maximise their family income and savings, and they found that the best way to achieve this was to exploit the opportunities of new technology.
For the Mrs. Watanabes, that meant accessing the forex markets.
Frequently from cash-rich households, the post-war generation found that cash deposits in bank accounts were earning little to no returns, and they sought more efficient and sophisticated ways of protecting their wealth.
When decentralised money markets became accessible via the internet, these stay-at- home housewives began putting their family’s money to work.
Often, while their husbands earned an income, it was the Mrs. Watanabes who generated the most wealth.
In this unlikely manner, Japanese housewives became the trailblazers for the modern, remote-operating day traders of today’s online forex market.
Mrs. Watanabe’s favourite market position was in the carry trade. Stereotypically conservative and risk-averse, the carry trade was seen as an investment strategy with almost guaranteed profits. So how does it work?
A carry trade is one where currency is borrowed in a denomination with a low interest rate, and then immediately invested into another, with a proportionately higher interest rate.
The effect of this is that the trader pays back a low fee for taking on a debt in the low interest currency, while obtaining higher interest payments in the currency they have invested in.
The difference between the two rates, minus transfer and conversion fees, becomes profit.
Although it may sound complex on paper, the carry trade is in fact one of the most simple forex trading strategies to learn.
Case Study: Famous Carry Trades
Perhaps the most famous carry trade of the past 25 years was the Japanese – Icelandic carry trade of the early 2000s. Japan (JPY) had a low interest rate that remained below 1 per cent for almost a decade.
Meanwhile, the Icelandic Icelandic króna (ISK) enjoyed interest on deposits that grew as high as 18 per cent, by 2007.
This carry trade was so popular that investors and forex traders from around the world bought Japanese Yen with the sole intention of selling them immediately for króna.
For the Mrs Watanabes, however, it was even simpler. With cash savings already denominated in low-yield Yen, they were able to invest in Iceland (and other high interest currencies) directly, with their own bank balances.
While the situation created a higher volume of Yen purchases to initiate each carry trade, the currency valuation remained largely stable, because those Yen were being re-sold almost immediately.
The net effect was minimal, and the Japanese currency remained at a relatively stable valuation against global currencies such as the US dollar (USD) throughout the period.
With the fallout from the 2007–2008 banking crisis, the profitability of the carry trade eventually diminished. Today, new opportunities have emerged to fill the gap in the market.
Mrs. Watanabe earned considerable profits from the carry trade, and emerged as an influential economic and cultural force.
Not only were the former stay-at-home housewives now able to influence the valuations of currencies on the open market, but they had become unlikely role models and icons for a new generation of female entrepreneurs.
The Mrs. Watanabes became associated with affluence, and luxury consumerism.
Today’s Forex Divas – with their aspirational lifestyles and vast social media followings watching their every purchase – may not realise it, but they owe a large debt to the pioneering Mrs. Watanabes of Japan.