Abe Spurs Day Traders as Japan Stock Swings Hit 2-Year High

Photographer: Junko Kimura/Bloomberg

Pedestrians walk past an electronic stock board outside a securities firm in Tokyo. The Nikkei 225 Stock Average has plunged 15 percent in four weeks, deflating a rally that had boosted the gauge 80 percent in just over six months as Abe took power. Close

Pedestrians walk past an electronic stock board outside a securities firm in Tokyo. The... Read More

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Photographer: Junko Kimura/Bloomberg

Pedestrians walk past an electronic stock board outside a securities firm in Tokyo. The Nikkei 225 Stock Average has plunged 15 percent in four weeks, deflating a rally that had boosted the gauge 80 percent in just over six months as Abe took power.

Sitting before a cluster of computer screens in an apartment with the drapes shut, it took Naoki Murakami seconds to make $3,500 betting $1 million that Tokyo Electric Power Co. (9501) shares would fall a fraction of a percent.

The 34-year-old day trader first sold 50,000 shares at 558 yen ($5.70), then three more lots at 1-yen intervals as the stock dropped. He got out $2,500 richer, repeated the trade, and seconds later had $1,000 more. Within minutes of the market opening, the former water-purifier salesman had made more than the average Japanese person earns in a month.

Stringing together 20 or 30 similar trades each day, Murakami said he’s almost doubled his money to $750,000 this year. He calls himself the smallest player in a group of seven day traders who chat with each other online, vacation together, and cumulatively buy and sell almost $100 million in stocks each day, using leverage to increase the size of their bets.

Day trading helps explain why Japanese individuals now account for more than 40 percent of the nation’s equity volume, or about as much as the overseas institutions that once were the biggest traders. They’ve also helped make Japan the most volatile developed market, which is good for some and bad for others.

Photographer: Jason Clenfield/Bloomberg

Day trader Naoki Murakami. Close

Day trader Naoki Murakami.

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Photographer: Jason Clenfield/Bloomberg

Day trader Naoki Murakami.

“They’re creating the volatility,” said Curtis Freeze, who helps oversee about $320 million as chief investment officer at Prospect Asset Management in Tokyo. “It’s great for them, but for the average long-term investor, it just scares them away -- including me.”

GPIF Stock Weightings

Volatility helps day traders by making room for bigger gains when they bet correctly on a stock’s direction. And it’s making it harder for Prime Minister Shinzo Abe to argue the market is safe as he tries to get households and pension funds to buy more equities. Japan’s Government Pension Investment Fund, the world’s No. 1 manager of retirement savings, said on June 7 it would raise its weightings of domestic stocks by one percentage point to 12 percent.

The Nikkei 225 Stock Average has plunged 15 percent in four weeks, deflating a rally that had boosted the gauge 80 percent in just over six months as Abe took power. It fell 1.3 percent today. The price swings pushed the Nikkei volatility index to the highest since the March 2011 earthquake and tsunami.

“Watching stocks go up and up since the start of Abe’s government got me thinking about investing,” said Maki Murayama, a 38-year-old Tokyo office worker. “But seeing what’s happened lately, I realize it’s not that simple.”

Dramatic price movements aren’t the only thing that’s made Japan a day trader’s paradise. Deregulation of margin trading opened the flood gates, Murakami said. After rules were relaxed in January, investors can borrow three times as much as their brokerage account balances and turn loans over the instant they exit a trading position.

‘Borrow Endlessly’

“Now you can borrow endlessly,” Murakami said.

Pointing at price charts on his screens, the trader explained how each day he borrows millions of shares of fast-moving stocks like GungHo Online Entertainment Inc. (3765) and Fast Retailing Co. (9983), the most-heavily weighted company on the Nikkei 225, and sells them short.

Working barefoot in a T-shirt and shorts out of a spare bedroom in his rented apartment in Osaka, Murakami said he’s made $350,000 this year, about three times his average in the previous eight years.

Leveraging Millions

One of Murakami’s friends, who goes by the blog name Tesuta, said looser rules let him leverage $4.5 million in cash into as much as $67 million in daily stock bets. He held up a hand-written ledger and showed his account balance at SBI Holdings Inc. as proof. He asked that his name not be cited for privacy reasons.

The number of shares traded by individuals rose to a record in May, some 43 percent of Japan’s total equity volume, up from 27 percent before the rally started in November, according to the Tokyo Stock Exchange.

While the Financial Services Agency and the exchange have no estimates of how many day traders there are, figures from Matsui Securities Co. (8628) show they accounted for 43 percent of the online brokerage’s transactions last month. Commissions at Kabu.com, an online broker, more than quadrupled in May from a year earlier, even as the number of accounts increased only 2.8 percent.

On an average day, the group of seven day traders to which Murakami and Tesuta belong buy and sell somewhere between $80 million to $100 million in Japanese stocks, according to estimates from the members.

“These guys are pros,” said Jesper Koll, head of Japan equity research at JPMorgan & Chase Co. in Tokyo, speaking of the group. “They’re acting like a proprietary trading desk at a major investment bank.”

Alaska’s Aurora

The group, which met years ago through their blogs, chat continuously during market hours. They vacationed together in Bali in April and have booked tickets for a trip to Alaska in September to see the aurora borealis.

Making money isn’t easy, Murakami said. With $100,000 in savings and no experience in the market, he started trading stocks from a desktop PC in 2005. Within two months, he’d lost half his stake.

Although he eventually learned how to get seven out of 10 bets right, trading in Japan’s stagnant market was like trying to sail a boat without any wind, until this year.

“When shares don’t move, you can’t get an opening for a trade,” he said. “Now that the market is moving, I feel like I have to make the most of it.”

Stop Losses

Tesuta has tripled his fortune to $4.5 million this year, he said in an interview at a Chinese restaurant in Osaka. Making 200 to 300 trades each day and cutting losses quickly to minimize the cost of bad bets, the 33-year-old said he’s managed to profit even amid the market’s recent decline by trading stocks like Tokyo Electric.

Battered by the meltdowns at Fukushima, the utility has become a favorite of speculators, moving more than 7 percent on an average day this year and accounting for about one in every 10 shares changing hands on the Nikkei 225 last month.

“Winning at stocks is about predicting the future,” Tesuta said. “I have a lot better chance of predicting what’s going to happen in the next few seconds than what will happen in the next six months.”

To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net; Anna Kitanaka in Tokyo at akitanaka@bloomberg.net

To contact the editor responsible for this story: Brian Fowler at bfowler4@bloomberg.net

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