Is Another ‘Black Monday’ Type Market Crash In The Making?

Japanese yen carry trade that crashed stock and crypto markets globally is making a comeback. Hedge funds and corporate clients are gradually getting back to using popular Japanese yen-focused carry trade to invest proceeds into high-yield assets. Are these early signs of another Black Monday?

Black Monday Prospects As Yen Carry Trades Making A Comeback

Japanese yen has weakened to 149 per US dollar today, hitting a two-week low as the US dollar strengthened on better-than-expected US economic data.

Japan’s biggest brokerage firm Nomura Holdings disclosed that investors have started borrowing the Japanese yen again to invest these funds elsewhere in higher-yielding assets. Especially, corporate clients and hedge funds are making a comeback into these deals, Bloomberg reported on August 16.

“There has been a notable move back” into carry trades after US retail sales data beat estimates, said Antony Foster, head of Group-of-10 spot trading at Nomura in London. He also added that multiple accounts sold yen to buy the Australian dollar and sterling.

US bond yields rose as the retail sales data eased economic concerns and fueled Fed rate cut expectations. This led to carry trades mounting as investors look for quick profits. Traders bets billions of dollars that the yen would weaken, before the currency jumped last month.

Australian online forex broker ATFX Global Markets witnessed a nearly 30% to 40% rise in yen shorts in the past week, with bets majorly driven by hedge funds and high-net-worth investor clients.

BitMEX co-founder Arthur Hayes warns that the market will focus on high-leverage trades if the BOJ and FED won’t allow the dollar-yen interest rate differential to narrow. High-leverage trades can make markets volatile and vulnerable to another market crash similar to Black Monday.