The forex trading accounts of Japanese housewives are becoming the barometer of the global capital market. When this group of retail investors known as 'Mrs. Watanabe' starts to collectively adjust their positions, Wall Street must also listen closely.
I will never forget the words of that eighty-year-old Japanese gentleman who runs a hospital in Shizuoka Prefecture. He has been engaged in foreign exchange trading for over twenty years and, with a wry smile, said, 'If I don't do FX, I might feel lonely. The feeling of being connected to the world situation makes me very happy.'
Just last week, when the Bank of Japan announced its first interest rate hike in over twenty years, raising the policy rate to 0.75%, I immediately thought of this gentleman. He, along with thousands of Japanese individual investors known as the famous 'Mrs. Watanabe' group, has just become the true stewards of global capital flows.
01 Invisible giant whales, the global influence of 'Mrs. Watanabe'
'Mrs. Watanabe' is a term that originated from The Economist magazine to refer to Japanese individual investors. This group was initially composed of Japanese housewives who held significant control over household finances. They were unwilling to settle for meager domestic interest income and directed funds to overseas financial markets to earn high returns.
Today, this group has evolved to include Japanese individual forex investors, including middle-aged men, who trade via apps.
In Japan, these individual investors once accounted for 20%-30% of the trading volume in the Tokyo foreign exchange market, and they still hold an important share in global retail forex trading. The scale of capital they control is astonishing, with Japan's total household financial assets reaching $14 trillion.
The typical strategy of these investors is to engage in 'yen carry trades': borrowing yen at low interest rates and converting them into high-yield currencies such as the dollar, then investing in U.S. Treasuries, U.S. stocks, or other high-yield assets. As long as the yen does not appreciate significantly, they can earn considerable interest differential income.
For many years, this strategy was almost risk-free arbitrage. The Bank of Japan maintained ultra-low interest rates or even zero interest rate policies for a long time, while overseas assets offered far higher returns than Japan. The interest differential once reached 5%, making carry trading an 'automatic teller machine' for Japanese individual investors.
Even investment masters like Warren Buffett have adopted similar strategies. Buffett's company has issued yen bonds in Japan in recent years, obtaining low-cost funds to invest in the Japanese stock market.
02 Game-changing rules, the impact of the first interest rate hike in thirty years
On December 19, the Bank of Japan raised the policy interest rate by 0.25 percentage points to 0.75%, the highest level since September 1995. This decision marks a significant shift in Japan's monetary policy, officially announcing the end of the era of ultra-loose monetary policy.
Behind the interest rate hike is the fact that Japan's inflation has exceeded the central bank's target of 2% for 44 consecutive months. In October of this year, Japan's core consumer price index (CPI) rose by 3.0% year-on-year and remained at a high level of 2.9% in November.
More critically, this round of inflation is driven by the linkage between service prices and wages. The wage increase in Japan's 'Shunto' reached 5.25%, combined with low unemployment rates, forming an endogenous inflation pattern of 'wages-prices' spiraling upward.
At the same time, the Federal Reserve has released signals of interest rate cuts. This back-and-forth has sharply narrowed the previously stable interest rate differential, directly touching the most sensitive nerves of 'Mrs. Watanabe.'
After the Bank of Japan's interest rate hike, the yield on newly issued 10-year Japanese government bonds, a long-term interest rate indicator, rose to 1.975%, the highest point since June 2007. This means that the funding costs for arbitrage trades are significantly increasing.
03 Chain reactions, global assets may face reconstruction
'Mrs. Watanabe's' collective actions have already begun. After the Bank of Japan signaled interest rate hikes in early December, speculative funds are rapidly withdrawing. From December 2 to December 16, the net position of non-commercial yen positions (i.e., speculative net positions) shrank by more than 60%.
This will trigger a series of chain reactions:
First, U.S. stocks and bonds may face selling pressure. When 'Mrs. Watanabe' realizes that the arbitrage space for borrowing yen to buy U.S. bonds is shrinking or even disappearing, they will decisively sell overseas assets and exchange them back into yen to repay loans. This action is likely to trigger a chain reaction: when asset prices begin to fall, leveraged funds will be forced to close positions, further intensifying market volatility.
Secondly, the cryptocurrency market may be the first to bear the brunt. Historical data shows a significant correlation between the yen exchange rate and Bitcoin prices. A stronger yen usually indicates tightening global liquidity, and Bitcoin, as a high-risk asset, often bears the brunt.
In fact, when expectations for Japan's interest rate hike heated up in December, Bitcoin plummeted by 6%, falling below the $85,000 mark. Due to the high liquidity of crypto assets and low repositioning costs, they often become the first assets sold off during carry trades.
The key point is that this capital flow may not be a short-term fluctuation. With Japan's aging population intensifying, the proportion of investors over 50 has risen from 20% in 2009 to 53% in 2024, while the younger generation stays away from forex trading due to risk aversion.
Thirty years later, the role of 'Mrs. Watanabe' may disappear. By then, without this group of 'buffer', the fluctuations in the yen exchange rate may become more intense.
04 A dangerous leap, the Japanese economy faces severe challenges
The Bank of Japan's decision to raise interest rates is referred to as a 'dangerous leap.' The reason is that while the central bank applies the monetary 'brakes,' the Japanese government has launched a fiscal stimulus plan of up to 18.3 trillion yen.
This contradiction between 'tight monetary policy' and 'expansive fiscal policy' may not only weaken the effects of interest rate hikes but also directly raise the financing costs of government debt.
Japan's total government debt has reached 229.6% of its gross domestic product (GDP), ranking first among developed countries. The Japanese Ministry of Finance predicts that by the fiscal year 2028, the government's interest expenses will increase from 7.9 trillion yen in the fiscal year 2024 to 16.1 trillion yen, more than doubling.
What is even more concerning is that the Japanese economy itself has shown signs of fatigue. The annualized quarterly growth rate of real GDP in the third quarter shrank by 2.3%, marking the first time in six quarters that Japan's economy has contracted again. If the GDP continues to decline in the fourth quarter, Japan will fall into a technical recession.
Thus, the Bank of Japan's interest rate hike faces a dilemma: further increases could suppress the nascent economy, but if it is forced to restart bond purchases due to market fluctuations, it will severely damage the credibility of its inflation target.
05 New pattern, the map of global capital flows is being redrawn
As the attractiveness of yen carry trades declines, global capital flows may enter a new phase of 'low carry, high allocation.' International capital may flow out of carry trades and shift back to Japan for reallocation.
In 2025, global capital is undergoing profound structural changes. The dollar index has fallen by nearly 8%, marking the largest annual decline since 2003, which reduces the attractiveness of U.S. assets to foreign investors.
At the same time, the total market capitalization of global publicly listed companies has reached $134 trillion, with the U.S. stock market accounting for $64 trillion, or 48% of the total. However, the flow of funds is shifting towards a more diversified international allocation model.
The market capitalization ratios in Europe and Asia are continuously expanding. The German DAX 40, Hong Kong Hang Seng Index, and European STOXX 600 all saw increases exceeding that of U.S. stocks. Investment logic has shifted from purely pursuing growth to balancing valuation and safety margins.
Sustainable green economy and technological advancements are attracting more capital. For example, due to global climate change and the growing energy demand from AI, innovations in photovoltaic technology and AI energy solutions have attracted significant investment.
The U.S. plans to invest $500 billion to build AI data centers, and the relaxation of technology regulation has made large transactions in the software and telecommunications sectors more active.
In these changes, the fund flows of Japan's 'Mrs. Watanabe' will become an important barometer for global capital flows.
In the next thirty years, the aging trend of Japanese FX investors is difficult to reverse. The proportion of investors over 50 has risen from 20% in 2009 to the current 53%, while those under 30 account for only 3.5%. The attitude of a young Japanese employee represents the new generation's mindset: 'The risk is high and not suitable for long-term asset allocation. I am not interested in FX.'
When the last 'Mrs. Watanabe' exits the market, the yen exchange rate will lose an important 'buffer.' A foreign exchange trader from a major Japanese bank predicts: 'Without them, the volatility of exchange rate movements may become intense.'
But in the short term, the power of these housewives and retail investors remains. Takuy Kanda, the survey minister of the .com Research Institute, pointed out that FX investors are adept at counter-cyclical operations: when the yen appreciates, they sell yen; when it depreciates, they buy yen. This operation has even been referred to as the 'FX Wall.'
So, the next time you see inexplicable fluctuations in U.S. stocks or a sudden crash in Bitcoin, don't just look at Wall Street; the real reason may lie in a regular housewife's trading orders in Tokyo.
This seemingly ordinary 'Mrs. Watanabe' is the true invisible giant who controls the flow of global capital.
Welcome everyone to share your views on the impact of Japan's interest rate hike in the comments section, or the latest trends in your market.
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