The yen soared to a record high of 76.25 against the dollar on Thursday, reaching levels that may force more market players to unwind positions and test the resolve of Japanese authorities threatening intervention to stem currency strength. A break through the previous record of 79.75 triggered a cascade of stop-loss and algorithmic selling of the dollar, sending the yen surging in illiquid trade in the hours between the US and Asian trading days.
Dollar/yen clawed back to near 77.50 on buying by Japanese importers and some retail margin traders, but the huge earlier drop to the record was seen prompting other investors to shed long positions in higher-yielding currencies, traders said. The Japanese margin traders were cited as one of the main factors behind the plunge in the dollar as stop-loss orders were triggered in their leveraged bets in currencies like the Australian dollar.
Just the day before, Japanese margin traders had built up long positions in dollar/yen totalling $2.8 billion, according to data from the Tokyo Financial Exchange. Total long positions in major currencies including dollar/yen were a record $8.25 billion. Traders also said that foreign investors were scrambling to get hold of yen to settle margin calls on bets on Japanese shares deeply in the red, forcing them to turn to spot currency at times as well as forwards and cross-currency swaps.
The dollar's collapse cracked the previous record of 79.75 struck in 1995 in the months following the Kobe earthquake. The yen also flew on the crosses, jumping around 6 big figures on the Aussie to as far as 74.50 yen, a six-month high, before clawing back to 78.05 yen.
The Aussie has shed over 7 percent against the yen so far this week as investors sell it as proxy for risk and global growth. The Aussie was at $0.9802 and fell as far as $0.9705 on Thomson Reuters Matching, a three-month low and a huge reversal from $1.0143 at the end of last week. The euro/dollar pair was a relative side-show at $1.3920.