Individual investors in Japan are piling into the Mexican peso at the expense of the Australian dollar, on the assumption that Mexico’s exposure to the resilient US economy is a better bet than is Australia’s to China.

Since the beginning of the year the total exposure of Japanese mutual funds to the high-yielding peso has climbed from Y182bn to Y297bn ($1.8bn), easily outpacing flows into other popular currencies such as the Polish zloty or the Turkish lira.

Meanwhile, interest in the Aussie dollar has waned as the central bank has cut its policy rate to a record low of 2.75 per cent, while signalling an easy stance in the months ahead to support growth threatened by slowing Chinese demand for iron ore and coal.

Assets held in Aussie dollar-denominated funds slipped from Y4.7tn to Y4.5tn between December and April, according to data from Japan’s Investment Trusts Association.

“For Japanese retail investors, the Mexican peso is the new Aussie dollar,” said Yunosuke Ikeda, chief currency strategist at Nomura in Tokyo. “If you believe in the upside potential for the US economy and the downside for China, it is a rational shift.”

Japan’s army of retail investors – often known collectively as “Mrs Watanabe”– have long been known for their ability to shape trends in currency markets by switching allocations within the Y28tn held in foreign-currency denominated mutual funds.

A big run-up in stock prices this year has left many investors flush with cash, keen to take on riskier assets. Retail investors bought a net Y328bn of foreign securities via mutual funds in April, the biggest monthly purchases since July 2011.

Foreign-exchange margin trading has picked up sharply too, with volumes of Y443tn in April higher than any month since November 2008, according to the Financial Futures Association of Japan.

Analysts said that flows into Mexican assets could continue, noting strong demand for peso-denominated “uridashi”, which are bonds in foreign currencies sold to Japanese households.

So far this year the peso ranks second by total uridashi issuance, according to Bloomberg data, not far behind the Aussie dollar, with 56 issues worth a total of Y1.2tn. Last year the peso ranked ninth with 16 deals totalling Y662bn – a long way behind the Aussie dollar, at Y6.1tn.

In addition, asset managers marketing so-called “double-decker” mutual funds have begun to offer the peso as one of the currencies investors can select to lay on top of a base of foreign high-yield bonds or domestic equities.

Mr Ikeda of Nomura said many investors are being lured by the possibility of an interest-rate rise, as the central bank appeared to make it clear that its latest cut in March – to 4 per cent – was “the final step” in easing.

“The economic outlook seems to be improving both in the short term, under the reforms of president Enrique Peña Nieto, and in the long term, thanks to the shale gas revolution in the US,” said Shinichiro Kadota, non-yen strategist at Barclays in Tokyo.

“For now, the peso is the hottest currency out there.”

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