‘Flash crash’ rips through Asia’s currency markets, exacerbated by algorithmic programming that sends the yen soaring

It took seven minutes for the yen to surge through levels that have held through almost a decade.

Traders are still seeking to piece together what happened just before 9:30am in Sydney, when orders came to sell Australia’s dollar and Turkey’s lira against the yen.

While some pointed to risk aversion triggered by Apple cutting its sales outlook, others said Japanese retail investors were behind the trades. Whatever the cause, the moves were exacerbated by algorithmic programmes and thin liquidity with Japan on holiday.

The results: the yen jumped almost 8 per cent against the Australian dollar to its strongest since 2009, and surged 10 per cent versus the Turkish lira. The Japanese currency rose at least 1 per cent all its Group-of-10 peers, bursting through the 72 yen levels against the Aussie that has held through a trade war, a stock rout, Italy’s budget worries and Federal Reserve rate hikes.

“The moves were very violent,” said Stephen Miller, an adviser at Grant Samuel Funds Management in Sydney and former head of fixed income at BlackRock Investment Management (Australia). “It’d have caught some by big surprise.”

The yen, a haven asset, has strengthened against all its major counterparts over the past 12 months as concerns over global economic growth mounted and stock tumbled in December. It strengthened 2.7 per cent against the US dollar last year, the only G-10 currency to gain versus the greenback.

That has not stopped investors in Japan from piling money into foreign currencies as the central bank’s negative-interest-rate policy made the yen a source of cheap funding. Individuals boosted their net Aussie long positions by 20 per cent in the month through December 18, according to the latest data from Tokyo Financial Exchange. These retail accounts’ net Turkish lira long positions were also at a four-month high.