HYDERABAD: Savers should begin their hunt for higher returns as interest rates on traditional bank deposits are expected to go downhill sooner or later. Just a few weeks ago, the government lowered rates on small savings schemes, including post office deposits and public provident fund. Though the reduction was next to nothing at 10 basis points, it is a clear indication that rates are expected to fall further, fetching marginal returns on your investable wealth stashed in ordinary savings accounts. If you intend to find an extra alpha in the ensuing rate easing cycle, it is time to take a lesson or two from scores of Japanese housewives.
Collectively called Mrs Watanabe — a common Japanese surname — she is the archetypal Japanese housewife seeking the best use of her family savings. Though historically risk-averse, to combat low interest rates hovering around zero in late 1990s, scores of Japanese women took to currency trading in early 2000s. Over the course of the decade, they earned not only more bang for their buck, but also a cult status across the world.
Subsequently, their reputation of being investing gurus rose, as more women started capitalising on the falling yen, which fell to 20-year-lows between 2003 and 2007 on an inflation-adjusted basis. Since banks were offering a pitiful near zero per cent interest for most of the decade, women, who traditionally have been custodians of family savings, took risky bets in their quest for relatively higher returns. The indulgence of homemaker-traders eventually left a discernible impact on both Japanese and global currency markets. In fact, according to Bank of Japan, it was the trading activity by housewives that helped stabilise currency markets as they bought on dips and sold into rallies.
How did they do it?
During the height of their popularity, the housewives dealt with carry trades, where an investor borrows money at a low interest rate and invests in an asset that’s bound to give higher returns. For instance, the women investors bought Japanese yen at low rates and traded it at a profit for a high-growth currency, largely at that point of time, the Australian dollar. They even accumulated Australian dollar deposits, facilitated by Japanese banks, which yielded significantly higher rates than they could have achieved with Japanese banks.
Before they knew it, the financial culture of Mrs Watanabe evolved from conservative savings to that of contrarian investments. As they got a grip on the market dynamics, they became bolder and opted to even dabbled in commodities and collateralised debt obligations.
The outpouring of yen from Japan resulted in the currency falling to a 20-year low in 2007, and when the 2008 global financial crisis struck, those who took extremely risky bets lost badly. However, that didn’t stop them from shying away from the markets altogether.
In fact, they returned with force a few years later and are now on top of their game, dealing with the hottest product in town — cryptocurrencies — which Japan legalised in 2017.