Fortune Seekers: Japan's Influence on the Forex Markets

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  Fortune Seekers | Planet Finance Documentary - Optimized Transcription:

I'd be up at 4:30 in the morning, finding out what's going on in the market and understanding how things are trading. It's what we call the feel of the market. I'd be up at 4:30 in the morning, finding out what's going on in the market and understanding how things are trading. It's what we call the feel of the market. The market feels like a vast ocean, what an adventure it can be to set out on it. Main Street wants to participate in what Wall Street does, people jumping in and not having enough education at the start. Markets aren't only one way, they don't always go up. For Fortune Seekers, navigating this Market is not without Danger.

Oh yeah. I just worry about, you're gonna get run over almost. It's a tough position for a retail Trader to be in. There is a world made up of numbers, a world where you have to be the smartest or the fastest. A world connected by radio waves and fiber optic cables, a world where you can make money if you think you know what the future holds. A world of fear and desire where you can win or lose. I call this world Planet Finance.

Wandering around Planet Finance, I arrive at a temple not far from Tokyo. People come to this place to increase their chance at Fortune. And who wouldn't want that? You don't know. There is such a thing as a Mrs. Watanabe, and this is also a Mrs. Watanabe. Oh, and her name is also Mrs. Watanabe. At least that is what she's called in the glass towers of London, Sydney, and New York. Mrs. Watanabe is a household name on Planet Finance. Japan now has one and a half million of them, and they all want to earn from their savings. Mrs. Watanabe is a collective name for Japanese retail Traders, and she's not alone. Since the pandemic, tens of millions of new Traders have jumped into the market worldwide. I wonder how tempting or dangerous it is to navigate Planet Finance.

In Japan, Mrs. Watanabe arrived on the scene early when the Japanese bubble burst in the early '90s. It's the first country in the world where you receive zero percent interest on your savings. So when the men are at the office, she starts to speculate on the exchange rate differences between her yen and other currencies. But people don't enter the market overnight. On our way to Tokyo, I ask this Mrs. Watanabe, as more of them arrive in the market.

Come on. Tonight. Decides to make a clean break. She enrolls in a course to learn how to speculate on the Foreign Exchange Market.

All these Mrs. Watanabes and Mr. Watanabes as well dream of making a fortune. They hang on every word of this night nurse who hit the jackpot with her trades. The perfect trade. Wouldn't we all want to make that? Looking for a way to pay off her debts, our Mrs. Watanabe decides to not tie her fate to a man anymore but to the largest market in the world, the Foreign Exchange Market. A market where more money is traded in a single day than in the entire Japanese economy in a whole year. Not every Fortune Seeker realizes that on the Foreign Exchange Market, the value of one currency always goes up or down compared to that of another currency. Where someone wins, someone else loses. It's a zero-sum game.

On the Forex Market, the week begins on Monday morning when the sun rises in Asia and euros are exchanged for Turkish lira, South African rand, or Japanese yen. As a Trader, you take a position. You buy a thousand euros worth of Japanese yen. Then you wait till the fluctuating exchange rate increases the value. Then you exchange your yen back to euros. Easy money if you can predict how much a currency will be worth tomorrow. You can earn a nice profit. On Planet Finance, banks are the most important players on the Forex market. And someone who works for a large Australian Bank to assess the fluctuating exchange rates is this Forex strategist. On an early Monday morning, when the rest of the world is still asleep and the Asian markets haven't opened yet, he's already recording a podcast for his bank's clients.

Okay, right. Okay, well, here you go. Get on with it. Well, it was quite a week last week, wasn't it? Particularly for bond yields in the United States. Well, the Foreign Exchange Market, arguably the biggest Financial Market in the world. The most up-to-date figures that we have, I think, clock that at 6.6 trillion US dollars per day. Just to give you an idea of how much foreign exchange trading takes place. So anybody in business that has a cross-border activity, if you like, as an importer or an exporter, has a need to manage the risks around future changes in exchange rates. So that's the sort of, you know, to some extent, the fundamental premise of why exchange rates, why they exist. My job is to try and inform clients to allow them to really think about their risk management that they want to apply. So I will tell you where the Australian dollar is going to be in three months, six months, nine months, 12 months, three years. You know, the chances of getting that right, you know, day in, day out, are obviously fraught with a lot of risks and uncertainty. But obviously, we bring a wealth of experience. So unforeseen things happen. As John Maynard Kane said, you know, when the facts change, I change my mind. So, you know, we have a set of forecasts, subjects to an underlying set of assumptions. And if those assumptions are challenged or proved incorrect, then we change our forecast.

So if Planet Finance already has such a hard time making predictions, what about Mrs. Watanabe? The Japanese Market is quite unique in terms of the size of the retail foreign exchange Traders. The Mrs. Watanabes, as we're calling them, their trading activity represents more than half of all of the turnover in the Japanese yen in the Tokyo Market. I've heard various stories of Mrs. Watanabe being hired into the bank because their ability to make money has been legendary in some cases, legendary and infamous. Because while Planet Finance is still asleep in London and New York, Mrs. Watanabe can already influence the market.

Storming Planet Finance in droves, you should make your money work for you. Right then, it's nice to fall back on someone who already knows the tricks of the trade. Like this Mentor, who once started out as an ordinary Mrs. Watanabe but who is now seen as a real foreign exchange Guru. With titles like "My way of making one million yen a month."

Yet even to our Mentor, the Forex Market is erratic and hard to predict.

Our Forex Guru overcame her own financial woes, and by doing so, she is showing the Mrs. Watanabes in the room that they can also change their fate for the better by creating their own fortune on Planet Finance.

And how can I learn this? That's explained to them through a lesson in recognizing patterns in price fluctuations. The method Planet Finance uses to visualize prices was developed three centuries ago by a Japanese rice Trader. He studied the past price fluctuations of a bag of rice.

Think of the market as a game for Mrs. Watanabe. Every round is a new chance. However, she has to learn to recognize her own overconfidence or fear and bear these emotions in mind when she decides to take another roll of the dice or not. Planet Finance believes emotion increases the chance of making mistakes on the market and even thinks it can easily brush these emotions aside. "I think the key trait for almost anyone in markets, but certainly those that are analysts and strategists like me, is to be able to be objective and not apply any kind of emotional lens to what is happening in the market," says a Forex strategist.

"The dominant players really are what I would call institutional investors. The ten biggest banks in the world probably do well in excess of half of all the foreign exchange trading that takes place. So, on an average day, there may be effectively three trillion dollars worth of buying and three trillion dollars worth of selling, and really not much happens in a way. But beneath the surface, there is an enormous amount of transactions that take place beneath that surface." The Forex Market is a Global Network that's open 24 hours a day and only briefly closes on weekends. There are a few rules and no Central regulator to suspend trading when something goes wrong.

"It's very easy to get into an investment position. The door is very wide where do you want to go in? But when everybody's trying to get out at the same time, the door to the exit can be extremely narrow. So, in an environment where most of the market participants all want to sell something, that's when the market can become very disorderly, and you do see these dramatic moves in very, very short periods of time. That's what can trigger some incredible volatility and price action," explains a Forex strategist.

Every Trader should always take into account the risk that at any given moment, something totally unexpected can happen, and on planet Finance, that's exactly when opportunities are bound. Fully aware of this principle is this Forex strategist who spent years on Wall Street working for the largest banks in the world. But since the pandemic, Wall Street is not the same anymore. She can now work from her house on the beach. It's Sunday evening in Florida, but in Asia, it's already Monday morning, so the Forex Market has just opened. "As always, Planet Finance is on the alert for things to come," she remarks.

"I'm gonna put on Bloomberg, and I like to put it on the TV as opposed to my computer because it feels more like a trading floor," she says, referring to current events. "It's probably Afghanistan back after 20 years. The Taliban entered Kabul as Afghanistan's president flees. In the U.S., Dow, S&P, and Nasdaq futures are just slightly negative. Reporting in advance talks to buy VHP's petroleum division, making it the top. We do have some clients like writing into us, they're like texting us and they're just asking, 'Will the events in Afghanistan have any Market impact?' And because we have so much going wrong globally with COVID, that's a destabilizing influence. When you add anything more geopolitical onto it, it can create volatility in the market."

"We're not really off too much. You see it very closely. The VIX could rise, so that's pretty much what we're gonna watch for tonight, the VIX, in terms of the volatility index. If that rises and if that impacts the dollar at all, maybe strengthening the dollar from like a safe-haven perspective, right, the VIX, Planet Finance's tool for measuring uncertainty in the market. The higher the VIX, the greater the fear of turbulence, in other words, volatility, which can create interesting opportunities for Traders."

"Could an event like the American withdrawal from Afghanistan make the VIX peak again? Of course, if there's a tragic, really bad optics, if there's a couple of children that get burned or whipped, I think we'd really see this coming back in a nasty, nasty way. But right now, the answer is no. I think today we've just seen not too much of an impact, but it has been risk-off today, which isn't surprising. The visuals coming out of Afghanistan, the actual photos of the people at the airports trying to leave Kabul are just—they're obviously not good photographs. They're obviously, these people are in trouble, these people are fleeing, these people are in pain. So these aren't the type of photos that anyone wants to see, and so they are creating some destabilization. So it doesn't have a big Market impact, but it may be a little bit through the lens of the market. All that matters is whether bad optics like crying children or fleeing people will affect the market prices."

"This might seem like a cold reaction, but this is planet Finance where you shouldn't get distracted by feelings of empathy or disgust. This worldview probably won't make you a nicer person, but it might make you a good Trader," she reflects.

"Really what Traders are, whether you're at a hedge fund or whether you're at a bank, you're a risk manager. So you need to be aware of the risks, and you need to be able to mitigate the risks, and you also need to be able to use the risk to your advantage. So when there's dislocation in the market, which can come endogenously or externally, these are the times to make money. It's like never waste a disaster almost, and I don't want that to be taken the wrong way. I don't want to say capitalize on a humanitarian crisis or something, that's not my point, but during these times of dislocations, markets do move, and so you don't want to be caught wrong-footed. But still, never waste a disaster," she advises.

Does Mrs. Watanabe realize that a disaster could also present a source of opportunities? This Mrs. Watanabe is a jewelry designer. It's hard to make a good living out of that, so she also speculates on the Foreign Exchange Market. She found out the hard way how frightening Planet Finance can be.

To find out how she came to that conclusion, we should go back to early 2011. On March 11, 2011, everyone is caught by surprise. A massive earthquake causes an exceptionally strong tsunami. The impact is so great that Japan literally shifts two and a half meters east, causing thousands of fatalities, total destruction, and billions worth of damage. On Planet Finance, such a disaster is called a Black Swan, a disruptive event that no one saw coming, something you can't be prepared for but that does have a major impact, also on the market, and this time mainly on the exchange rate of the Japanese Yen.

At such a moment, empathy is something you don't need on Planet Finance. Meanwhile, our Forex strategist is in the U.S. on the trading floor of one of the largest banks in the world. "It's an external shock, right? So, you have no idea it's coming. It's something not of the market that comes to the market. So, on the trading floor, we obviously watch all the currencies and the equity markets on our screens, and you get a feel for when you watch them tick by tick every single day for hours a day. You get a feel for how things are trading. There was so much buying of yen, and that kind of happened in the sense because externally.