A quadrillion yen is lying idle with Japanese households, ready to be shipped overseas when yields abroad turn more attractive, and that moment could arrive as soon as this week.
Later on Wednesday, the Federal Reserve will be raising rates again and by as much as a full percentage point. The following day, the Bank of Japan is certain to cement its standing as the lone global dove in developed markets by sticking to its negative rates.
The difference in yields between the two markets will hit 300 basis points (bps): an inflection point that analysts say will prompt Mrs Watanabe, a moniker for the famed Japanese retail trader, to ditch the yen and move money out.
"In terms of pure FX carry, the dollar will soon provide 3%, yen is still 0%, so that's a big difference," says Shusuke Yamada, chief forex and rates strategist at Bank of America in Tokyo. Those kind of yields are incentive for both institutional and retail investors to buy U.S. dollars and hold them, he says.
"Japanese households have a thousand trillion in yen deposits. I don't think it's going to move 1% a year, but even 0.1% is already one trillion, so even a small portion could have a meaningful impact. There is that potential," says Yamada.
The blow to the already battered yen , that's down 20 percent versus the dollar this year, should be cause for concern for the Bank of Japan.
Yield-seeking Japanese households have been notable absentees from global currency markets during the pandemic years as central banks pushed rates towards zero, squishing spreads between currencies and killing the pervasive yen-funded "carry" trade.
But household savings have been building up in the world's largest creditor nation. As of June, households had 1,102 trillion yen ($7.7 trillion) in cash and deposits, while private non-financial companies had 325 trillion yen.
"There is a risk of what I call capital flight by Japanese households," said Tohru Sasaki, head of Japan markets research at J.P. Morgan Securities in Tokyo.
"We have been talking about that for a long time - actually more than a decade - but it never happened. But I think the current situation is really different.
"The generation is shifting, technology is improving, and Japan's situation is getting worse, so the possibility is getting higher of seeing a kind of capital flight."
