Active currency traders can answer anything! Everyone's Q&A [Traders Securities Everyone's FX Iguchi Yoshio]

There is no one to challenge me, and even after researching I don’t understand it well... If you have such worries, leave it to this project. Mr. Inoguchi from Treiders Securities will solve your questions!

Yoshio Inoguchi Profile

Inoguchi, Yoshio. Treiders Securities Market Department, Dealing Section. Certified Technical Analyst. He has been in the financial industry since 1998, primarily involved in covering dealing operations focusing on commodity markets such as precious metals and petroleum products. Since 2009, he has been with Minna no FX, conducting dealing operations focusing on USD/JPY and major European currencies. He is proficient in fundamental-based forex analysis and is also known for short-term projections using technical analysis. Recently, he has appeared in Minna no FX’s free online seminars, and his easy-to-understand lectures have been well received. Furthermore, on Twitter, professional dealers share real-time opinions on the market, so be sure to check it out.

Twitter:https://twitter.com/yoshi_igu

Q17. Can the trending high-yield Turkish Lira/JPY really win? (Hiroshima Prefecture / in their 20s / male)

A. It is a mistake to trade just by looking at swap points because of high interest rates. To win, it is important to understand the essence of high-interest currencies and control your positions.

Why is the Turkish Lira high-interest?

The Turkish Lira is well known in FX as a high-interest currency. It can steadily generate income through swap trades, so it has support from some investors who prefer long-term investment, but on the other hand, there are voices calling it dangerous. This time, let’s examine interest rate differentials by solidly understanding the theory and think about future prospects.

What is referred to as the interest rate in FX is the policy rate. If you have taken out loans, you may have seen long-term rates such as 10-year yields. The policy rate refers to short-term rates, from overnight (lending rate for one day) up to about three months. Central banks control short-term rates to stimulate or restrain banks’ lending appetite and to adjust the money supply, conducting operations in the short-term money market under a monetary policy framework.

As you know, Japan’s policy rate has remained in the 0% range for more than 20 years, but if you are engaging in typical investments, higher interest rates are more attractive. For this reason, emerging markets tend to set higher rates than developed countries.

What is important to note here is that higher interest rates are not inherently better. There are various risks associated with interest rates, and in emerging markets like Turkey, the sovereign risk—the risk of a national default—is taken into account. That's why the interest rates are extremely high. Summing these up:

Emerging market policy rates = rates set for economic adjustment + a premium added to reflect the country's fiscal risk

Therefore, when investing in the Turkish Lira, it is necessary to consider fundamentals.