May 23 (Bloomberg) -- Trading of currencies in Japan using borrowed funds rose 41 percent in the first quarter to 109 trillion yen ($896 billion), exceeding 100 trillion yen for the first time, the Financial Futures Association of Japan said.

``Foreign-exchange margin trading volume is soaring,'' said Fukaya, whose firm is a member of the association. ``It is contributing to the yen carry trade,'' in which investors borrow Japan's currency and invest in higher-yielding overseas assets.

``Japanese individuals' trading volume accounts for 20 percent to 30 percent of the interbank foreign-exchange market in the Tokyo time zone,'' Fukaya said. ``They are also active in London time after going home. They are becoming a rival to be reckoned with for institutional investors.''

Tokyo Margin Currency Trading Volume Exceeds 100 Trillion Yen

By Kosuke Goto

May 23 (Bloomberg) -- Trading of currencies in Japan using borrowed funds rose 41 percent in the first quarter to 109 trillion yen ($896 billion), exceeding 100 trillion yen for the first time, the Financial Futures Association of Japan said.

Margin trading surged in the three months ended March 31 from the fourth quarter, a spokesman at the association, who asked not to be identified, said today. The increase highlights the popularity of currency investment among Japanese individuals, said Koji Fukaya, senior currency strategist in Tokyo at Deutsche Securities.

``Foreign-exchange margin trading volume is soaring,'' said Fukaya, whose firm is a member of the association. ``It is contributing to the yen carry trade,'' in which investors borrow Japan's currency and invest in higher-yielding overseas assets.

The yen has fallen against all of the 16 most-active currencies in the past year, as the Bank of Japan signaled it may keep its benchmark interest rate of 0.5 percent unchanged in coming months. The association's figures reflect trading by individuals rather than institutions.

The yen dropped to a three-month low of 121.77 against the dollar before trading at 121.68 at 7:14 a.m. in London from 121.56 late in New York yesterday. It also fell to 163.73 per euro from 163.48. The currency may drop to as low as 123 versus the dollar and 165 per euro by the end of June, Fukaya said.

Low Volatility

Japanese retail investors are also helping to moderate currency swings by buying foreign currencies on dips, said Fukaya. Volatility on one-month yen options fell to 6.30 percent today, down from 7.50 a month ago. Lower volatility implies smaller exchange-rate fluctuation risk, encouraging investors to add to yen carry trades.

``Japanese individuals' trading volume accounts for 20 percent to 30 percent of the interbank foreign-exchange market in the Tokyo time zone,'' Fukaya said. ``They are also active in London time after going home. They are becoming a rival to be reckoned with for institutional investors.''