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 programs 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 Pty 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 dollar last year, the only G-10 currency to gain versus the greenback.
That hasn't 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 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 per cent against the dollar on 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 per cent in two minutes on October 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 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 LLC.
That added to already fragile sentiment in a week when a manufacturing gauge in China signalled contraction for the first time in more than two years, while the Federal Reserve Bank of Dallas said that its factory index shrank.
With Japan on a four-day holiday this week, traders said they struggled to handle a flood of sell orders with pricing erratic. As the yen advanced to 105.50 against the dollar, others were forced to pile in to cover their short positions, traders said.
While the sudden move caught currency markets by surprise, the takeaway is a little simpler, traders said. With uncertainty still hanging over the US-China trade war, don't be surprised if the yen repeats last year's performance, they said.