Forex volume drops in Japan as well

Reuters reports that Forex volume dropped by 16 percents in Japan. This shouldn’t come as a complete surprise as institutional

Reuters reports that Forex volume dropped by 16 percents in Japan. This shouldn’t come as a complete surprise as institutional Forex trading volume decreased drastically throughout the world – dropping as much as 25% in Northern American and the UK. If the Tokio Exchange Market Committee also counts retail Forex in its reports than there is another reason for this drop – the capped leverage Japan’s regulators just introduced.

Institutional Forex traders (typically hedge funds and banks) trade more conservatively in volatile times than retail traders who are more speculators than long term investors.

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Key findins Reuters reports based on Tokyo Foreign Exchange Market Committee Survey released last month.

* Total daily FX volume down 16 pct on year in Tokyo

* Hedge funds choose other more liquid FX centres

* Spot FX volume falls behind Singapore

* But swaps volume remains high, overtakes New York

By Shinji Kitamura

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TOKYO, Aug 20 (Reuters) – Foreign exchange trading volume in Japan has fallen 16 percent this year after many hedge funds closed out investments during the global financial crisis, and Tokyo’s turnover in spot trading now lags behind Singapore.

But steady turnover in FX swaps has helped Tokyo remain ahead of Singapore, its key rival as Asia’s dominant FX trading hub, in overall foreign exchange product trading, data on traditional FX instruments from the Bank of Japan showed.

Average daily volume in spot, FX swaps, forwards and FX options traded in Japan fell 16 percent in April 2009 from a year ago to $254 billion, according to a Tokyo Foreign Exchange Market Committee Survey released last month.

But Tokyo’s daily volume in spot FX trading alone slumped 33 percent to $70.2 billion from the same month last year, trailing behind Singapore’s daily volume of $88.1 billion, where the decrease was only 6 percent.

The drop also exceeded falls in spot in other big FX centres, with New York volume falling 25 percent and London 20 percent.

Market players said hedge funds have slowly returned to the financial markets as global markets have stabilised this year, but Tokyo has failed to attract funds back for trading and this contributed to the particularly big drop in Tokyo’s spot volume.

“Hedge funds are rebuilding ‘risk-on’ positions after stock markets hit their bottom in March. But they have been skipping the Tokyo market due to low liquidity,” said Akira Hoshino, chair of the Tokyo Foreign Exchange Market Committee.

The world’s largest forex trading centre remains London with total average daily turnover of $1.3 trillion, followed by New York with $527 billion in over-the-counter currency instruments. However both saw overall daily volume dropping by a quarter year-on-year.

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