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(Bloomberg) — Japan’s retail investors look to have bought the dip in the pound just in time for the currency to fall off a cliff as polls showed Britons may vote to leave the European Union.
Wagers from individuals for sterling to gain against Japan’s currency outnumbered bets it would drop by 314,616 contracts as of June 7, the biggest net longs since Tokyo Financial Exchange Inc.’s Click 365 began collecting the data in 2006. That contrasts with global options markets, where the amount wagered on the pound falling to the lowest since the 1980s more than doubled over the past three months.
The pound plunged against major peers this month as polls showed the campaign for a Brexit vote garnering momentum. That spurred Japan’s individual investors, known for favoring contrarian positions that offer the chance for larger gains, to pile into bets for a rebound. With the U.K. currency extending its slide to an almost three-year low against the yen this week, some of those buyers may be stuck hoping sterling turns around before they are forced to sell at a loss.
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“These retail investors, who appear to have bought the pound when it dipped to appealing technical levels earlier this month, may be stuck with unrealized losses now,” said Takuya Kanda, a senior researcher at Gaitame.com Research Institute Ltd. in Tokyo. “It is extremely dangerous if they keep their current positions until the referendum.”
Investors are responding to the Brexit-related risks by bolstering their protection against sterling declines. They have bet 25 billion pounds ($35 billion) this year on options that would profit if the currency tumbled to $1.35 or lower after the June 23 vote.
In January, South Africa’s currency deepened its decline as Japanese retail investors unwound bets it would strengthen versus the yen. The rand slid to record lows at the time amid a commodities rout and political challenges in South Africa.
