Japan Forex market shrinks in 2011

Two years of successive regulatory reductions in allowed leverage (now just 25:1) have taken their toll on the Japanese Forex market, knocking Japan out of first place in terms of volumes traded. The hit has been double-edged – lower leverage has reduced revenue-per-client at Forex firms operating in Japan by up to 20%, and has also caused many clients (up to 10%) to just abandon Forex trading altogether. The fact that the USDJPY pair has seen very little volatility, trading in a tight 76-78 band for the past six months, has not helped matters either.

Several leading international Forex firms have taken advantage of the turmoil in Japan, buying up troubled Japanese Forex firms:

  • Market leader FXCM acquired two Japanese firms in 2011 – Foreland Forex (for $17 million) and CGI Capital ($27 million), and now stands as one of the top five firms in Japan.
  • Alpari acquired CMS Japan KK.
  • Leading Ireland-based firm AvaFX acquired Art Co Japan.
(For a complete list of Forex-related M&A dating back to 2005 see the LeapRate-Dow Jones Forex Industry Report for 2011.)
We currently estimate the Japanese Forex market to be generating volumes of approximately $35 billion daily, down from about $65 billion before leverage restrictions came into play. This places Japan now in second place globally, behind Europe at $71 billion daily, with Asia (non-Japan) slowly catching up. Our estimates are based on conversations with industry participants, as well as information provided by certain firms operating in Japan, such as publicly-traded IG Group, which was one of the first foreign firms to operate in Japan via its 2008 acquisition of FXOnline Japan for £112 million.

For more details and information on the global Forex market see the LeapRate-Dow Jones Forex Industry Report for 2011.

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