It took seven minutes for the yen to surge through levels that have held through almost a decade.
In those wild minutes from about 9:30 a.m. Sydney, the yen jumped almost 8% against the Australian dollar to its strongest since 2009, and surged 10% versus the Turkish lira. The Japanese currency rose at least 1% vs. all its Group-of-10 peers, bursting through the ¥72 per Aussie level that has held through a trade war, a stock rout, Italy's budget dispute and Federal Reserve rate hikes.
Traders across Asia and Europe are still seeking to piece together what happened in those minutes when orders flooded in to sell Australia's dollar and Turkey's lira against the yen. While some pointed to risk aversion triggered by Apple Inc. cutting its sales outlook, others said Japanese retail investors were bailing out of loss-making positions. Whatever the cause, the moves were exacerbated by algorithmic programs and thin liquidity with Japan on holiday.
"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 (BLK) Investment Management (Australia). "It would have caught some by big surprise."
With Japan on a four-day holiday this week, traders said they struggled to handle a flood of sell orders with pricing erratic. Once the yen strengthened past 105.50 against the dollar, others were forced to cover their short yen positions, said traders who asked not to be identified as they aren't permitted to speak publicly.
"It looks more like a liquidity event with the move happening in the gap between the New York handover to Asia," said Damien Loh, chief investment officer of hedge fund Ensemble Capital in Singapore. "It was exacerbated by a Japan holiday and retail stops getting filled on the way down especially in yen crosses."
As a result, the yen surged against every currency tracked by Bloomberg, and was up 1% against the dollar at 107.78 by 9:30 a.m. in London.
The haven asset has strengthened against all its major counterparts over the past 12 months as concerns over global economic growth mounted and stocks tumbled. It rose 2.7% against the dollar last year, the only G-10 currency to gain versus the greenback.
"Yen strength has been omnipresent since mid-December, cementing the status of the yen as the only true safe haven these days amid political risks elsewhere," said Christin Tuxen, head of currency research at Danske Bank.
That hasn't stopped investors in Japan from piling 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 45% in the two weeks through Dec. 18, according to the latest data from Tokyo Financial Exchange Inc. These retail accounts' net Turkish lira long positions were also at a four-month high.
These investors may have been forced to exit positions after the yen advanced almost 1% against the dollar Wednesday, according to Ray Attrill, head of FX strategy at National Australia Bank in Sydney.
"We can only speculate on whether the behavior of Japanese retail FX accounts, suffering further losses on short yen positions overnight and being forced to exit, was an initial catalyst for the scale of the moves," he said.
Flash crashes have happened before in early Asian trading when liquidity is thin. The pound plunged 6% in two minutes on Oct. 7, 2016, amid concerns over Brexit and speculation of a "fat finger." Thursday's wild moves started around an hour after Apple cut its fiscal first-quarter revenue, with Chief Executive Officer Tim Cook saying they were surprised by the magnitude of the slowdown in the Greater China region.
"The Apple news is driving safe haven flows, which have seemingly triggered a flash crash in FX," said Brad Bechtel, global head of foreign exchange at Jefferies.
That added to already fragile sentiment in a week when manufacturing gauges across the world's biggest economies all stumbled, with a Chinese indicator signaling contraction for the first time in more than two years. Factory growth in the euro area fell to the lowest in almost three years.
While Thursday's sudden market turmoil came as a surprise, the fact the yen strengthened wasn't itself unexpected, traders said. With the U.S. and China embroiled in a trade war and stocks sliding, Japan's currency may be set to repeat last year's strong gains.
"The yen is excessively undervalued and we're now seeing that unwind, largely because risk aversion increased," said Peter Kinsella, global head of currency strategy at Union Bancaire Privee in Geneva. "I expect the yen will continue to appreciate. 102 is doable."