Volatile markets test Kishida’s push to make Japan a nation of investors

TOKYO – A day after the Tokyo stock market had its biggest fall since 1987, Yuri Sekiya decided it was time to heed Prime Minister Fumio Kishida’s longstanding call for Japanese citizens to invest more of their USD 15 trillion in household assets.

The recent market volatility has emerged as a test case for Kishida’s drive to transform Japan from a nation of savers to one of investors, a shift crucial for the world’s fourth-largest economy as it confronts a rapidly aging population.

Sekiya, 49, spent Tuesday morning, as stocks were rebounding, at a brokerage seminar learning about NISA accounts – the government’s tax-free program designed to channel dormant cash into shares and mutual funds – in Tokyo’s Shinjuku district.

“Maybe now is a good time to start a NISA, because I think the market will go up more stably” after the plunge, said Sekiya, who works part-time in education. She opened her NISA account earlier this year but had held off investing due to caution.

“Japan is becoming a society where we can’t just rely on our pension,” she said, underlining growing awareness among many Japanese that cash is no longer enough to ride out retirement.

Everywhere, Japan is showing quiet signs of change after decades spent battling deflation and stop-start growth: prices and wages are going up and the central bank is lifting interest rates for the first time in years.

Kishida has made the NISA, which was first launched in 2014, a pillar of his “new capitalism” platform aimed at boosting household wealth after years of decline.

The Nikkei benchmark index .N225 slumped more than 12% on Monday followed by a 10% surge on Tuesday. Market participants attributed panic selling, including by more sophisticated retail investors who were trading on margin – or using borrowed funds – as a key driver of Monday’s decline.

Tokyo exchange data showed a record value of shares bought on margin in July, a risky strategy that can increase returns but also amplify losses in a downturn.

BROKERAGE SWAMPED

SBI Securities, Japan’s largest online brokerage, said its website was flooded with users shortly after the market opened on Tuesday. Some customers had difficulty accessing the website, a situation that lasted about an hour, a spokesperson said.

There were customers who wanted to sell and others wanting to buy on the dip, the spokesperson said.

Telephone inquiries had increased by about 50% and the brokerage reinforced staffing at call centers. It had not seen evidence of a client exodus when it came to NISA accounts, the spokesperson said.

Many Japanese have long avoided investing, seeing it as too risky or akin to gambling.

“There are more people considering investing now, but seeing the current situation might make them hesitate,” said 69-year-old Hiroshi Nabasama, who works in marketing and has had a NISA account for a decade.

“Younger people are showing more interest in stocks, unlike our generation,” he said.

Kishida wants to see household investment income doubled to ease reliance on the public pension system as Japan ages.

Under his administration, the NISA program was overhauled; from this year the annual investment limit was increased to 3.6 million yen (USD 24,400), and balances up to a certain level made permanently tax-exempt.

As a result, Japanese have flocked to NISA, with the number of accounts surging by almost 2 million in the first three months of this year, according to the Japan Securities Dealers Association.

As of March, there were approximately 23 million NISA accounts with around USD 267 billion invested through them, according to the FSA bank regulator. Many investors, especially first-timers, favor global or U.S. mutual funds rather than domestic assets.

However, not everyone is rushing to invest.

IT worker Yui Takei, 36, who does not have a NISA account, said: “I like the idea of investing in a NISA, but given the recent decline and other issues, I think it’s crucial to study thoroughly before jumping in.”

She added that she found the government’s promotion of the program somewhat off-putting.

Sekiya said her 20-year-old daughter cautioned that it might not be a good time to invest given the market’s recent volatility, but she disagreed.

“I think we just need the right knowledge to invest.”

(USD 1 = 147.6000 yen)

(Reporting by Sakura Murakami and Tim Kelly; Additional reporting by Tom Bateman, Junko Fujita, Kiyoshi Takenaka, and Mariko Katsumura; Writing by David Dolan; Editing by Jacqueline Wong)

Oil edges lower on surprise build in US crude and gasoline stocks

Oil prices slipped in early Asian trading on Wednesday following a brief rebound in the previous session after industry data showed an unexpected build in US crude oil and gasoline inventories, offsetting global oil supply concerns.

Brent crude futures fell 21 cents, or 0.27%, to USD 76.27 a barrel by 0020 GMT. US West Texas Intermediate crude slipped 25 cents, or 0.34%, to USD 72.95 per barrel.

US crude oil, gasoline, and distillate inventories rose last week, according to market sources citing American Petroleum Institute figures on Tuesday.

Benchmarks slipped accordingly. Both WTI and Brent had bounced off multi-month lows to settle higher in the previous session.

The API figures showed crude stocks were up by 176,000 barrels in the week ended Aug. 2, the sources said, speaking on condition of anonymity. Analysts polled by Reuters had expected crude stocks to fall by 700,000 barrels.

Gasoline inventories rose by 3.313 million barrels against analysts’ expectations for a 1 million bbl draw, while distillate stocks rose by 1.217 million barrels, a bigger build than anticipated.

The US Energy Information Administration is due to release weekly inventory data at 10:30 a.m. (1430 GMT) on Wednesday.

On Monday, Brent futures slumped to their lowest since early January and WTI futures had touched their lowest since February, as a global stock market rout deepened on growing concerns of a potential recession in the US, the world’s largest petroleum consumer.

However, both benchmarks broke a three-session declining streak on Tuesday as tensions in the Middle East stoked supply concerns, supporting prices.

Iran’s vow of retaliation against Israel and the US following the killing of two militant leaders has raised concerns that a wider war is brewing in the Middle East.

“Any escalation of the conflict in the Middle East could see a greater risk of disruptions to supplies from the region,” ANZ analyst Daniel Hynes said.

Lower production at Libya’s 300,000 barrel-per-day (bpd) Sharara oilfield is also adding to concerns of supply shortages.

Global oil inventories decreased by around 400,000 bpd in the first half this year, according to US Energy Information Administration (EIA) estimates published on Tuesday. It expects stockpiles to decline by around 800,000 bpd in the second half of the year.

(Reporting by Nicole Jao in New York; Editing by Sonali Paul)

Bridgewater says sell-off in Japan’s stocks is overdone

NEW YORK – Bridgewater Associates said in a commentary sent to investors on Tuesday that it believes the sell-off in Japan’s equities the previous day was exaggerated and that the stocks remain somewhat attractive, according to two sources familiar with the letter.

According to the sources, the USD 112.5 billion global macro hedge fund wrote that, in their opinion, the sell-off looked overdone relative to the change in fundamental conditions.

Bridgewater did not immediately respond to a request for comment on the analysis shared with investors.

On Monday, the Nikkei sank 12.4% in its biggest daily sell-off since the 1987 Black Monday crash, after a job data report on Friday showed a higher-than-expected US unemployment rate, raising concerns about a recession in the world’s largest economy.

On Tuesday, Japan’s benchmark index rebounded strongly and closed up 10.2%.

Investors also started to unwind yen-funded trades that had been used to finance the acquisition of stocks for years after a surprise Bank of Japan rate hike last week, exacerbating market moves.

Bridgewater said in the commentary it considered Monday’s brutal sell-off to be shallow and short-lived, not representing major changes in fundamental conditions.

A stronger yen after the Bank of Japan raised interest rates last week and a lower rate of growth in developed markets make conditions for Japan’s stocks less supportive, but Bridgewater said the unwinding of the yen carry trade exacerbated the move.

The hedge fund told its investors that it continues to view Japanese equities as somewhat attractive.

Bridgewater did not disclose if it was actively involved in the yen carry trade.

MACRO FUNDS

Global macro hedge funds such as Bridgewater trade across equities, fixed income, and commodities in different geographies, betting on global trends.

This strategy along with managed futures funds or commodity trading advisers (CTAs) was a strategy most affected by the recent unexpected rally in the yen, according to hedge fund research firm PivotalPath, as the funds had sizeable bets against the Japanese currencies.

In the Aug. 1 to Aug. 5 period, global macro quantitative funds posted losses between 1.5% and 2.5% because of their short yen positions, PivotalPath’s exposure model calculations showed. After losses of over 2% in July, those funds are down between 4% and 5% year-to-date, after posting gains of almost 8% in April.

The drawdown will make a recovery before the year-end more challenging for those funds, according to Jon Caplis, chief executive officer at PivotalPath.

“A lot of global macro managers going into this year were pounding the table that these (market) dislocations would be very beneficial to them and they would be able to take advantage of these opportunities. Unfortunately, I think you’re going to see some disappointment,” he said.

(Reporting by Carolina Mandl in New York; Editing by Matthew Lewis)

Dollar poised for comeback, recent weakness just a hiccup

BENGALURU – The US dollar will claw back some of its recent losses over the coming three months on expectations financial markets have again gone too far in pricing in too many Federal Reserve interest rate cuts this year, a Reuters poll of foreign exchange strategists found.

After rising about 5% for the year, the greenback lost more than half its gains against a basket of major currencies in recent weeks amid sluggish US economic data fuelling expectations of multiple Fed rate cuts, starting in September.

Much of those losses came following weaker-than-expected jobs data on Friday, which encouraged financial markets to project around 120 basis points worth of rate cuts in total from the three remaining Fed meetings this year, compared with 50 basis points just a few weeks ago.

Several major banks, including primary dealers who deal directly with the Fed, followed suit in predicting more rate reductions than expected earlier.

Yet with policymakers pushing back against speculation that recent weakness in economic data would translate into recession, markets may yet again be forced to temper their rate cut expectations.

FX strategists in the monthly Reuters poll, conducted from Aug. 1-6 through recent market turmoil, predicted the euro EUR=, currently about USD 1.10, would fall about 1.4% to USD 1.08 by end-October, before rising to current levels in six months and then to USD 1.11 in a year.

“Our strong dollar argument has certainly taken a big hit in terms of confidence, but is its strength truly over? That’s not our call,” said Paul Mackel, global head of FX at HSBC. “Our recession indicators are not flashing red. And even if the US economy loses momentum, that usually spells bad news for other economies. The dollar does better in that environment.”

“Are markets getting carried away? Naturally, I’d say yes, but it’s difficult to stand in front of that speeding train in the very short term because this type of overreaction can persist,” Mackel added. “You need to be very careful when volatility is this high and you’re not used to it coming back so quickly.”

MAJOR CUTBACK

The Japanese yen, which started its latest upward march against the US dollar after the Bank of Japan raised its overnight call rate to 0.25% on July 31 and announced a major cutback in its asset purchases going forward, hit a seven-month high of 141.7/USD on Aug. 5. It will hold on to its recent gains to trade at 144/USD in a year, the survey showed.

Some FX analysts, however, attributed much of those gains to traders unwinding large volumes of carry trades – where investors borrow from economies with low rates to fund investments in higher-yielding assets elsewhere – which sent the Nikkei stock market index down more than 12% on Monday and then back up over 10% on Tuesday.

The latest positioning data from the Commodity Futures Trading Commission (CFTC) before recent market volatility also showed speculators had slightly increased their net long bets on the US dollar.

Forecasters in previous Reuters polls, who for years have held on to their expectations of a weakening dollar, were split when asked if it was more likely the dollar would trade stronger or weaker than they predicted for the remainder of the year. A slight majority, 32 of 62, said stronger, while 30 said weaker.

“Setting recent developments aside for a minute, we’re generally in the soft-landing camp and think once the US economy starts to recouple with the rest of the world’s economies, we’ll see the dollar’s outperformance and more importantly, its overvaluation, start to normalize a bit going forward,” said Alex Cohen, FX strategist at Bank of America.

(Reporting by Sarupya Ganguly; Analysis by Purujit Arun; Polling by Indradip Ghosh, Devayani Sathyan and Vijayalakshmi Srinivasan; Editing by Ross Finley and David Holmes)

Aftershocks of carry trade at heart of market rout could still have reverberations

NEW YORK – Investors said the aftershocks of a massive carry trade that has reverberated through global financial markets weren’t done yet, with more unwinding in the days ahead raising the risk of shake-outs to other assets.

The Nasdaq Composite and the S&P 500 trimmed losses by the close on Monday, capping off a brutal three-day selloff while Tokyo markets rebounded from a similar rout in trading on Tuesday.

The massive selloffs had come after a higher-than-expected US unemployment rate on Friday sparked worries the US economy was heading for a recession. Concerns about the markets were exacerbated by investors winding down yen-funded trades that had been used to finance the acquisition of stocks for years after a surprise Bank of Japan rate hike last week.

The so-called ‘carry trade’ is commonly used in currency markets where investors borrow money from economies with low interest rates such as Japan or Switzerland, to fund investments in higher-yielding assets – this time stocks – elsewhere.

Despite the easing off in selling, investors were worried about more volatility ahead.

“We expect the sell-off to continue for maybe a few more days as usually these… trades are pretty large,” said Zhe Shen, head of diversifying strategies at TIFF Investment Management. “People said ‘wait, we’re losing too much money from unwinding. Let’s just hold and we’ll unwind some more tomorrow.”

The complete unwind of this yen-funded trade is likely to take days, potentially extending the market rout, Zhe said.

“There’s tons and tons of yen carry trades that still have to be closed out,” said Ulf Lindahl, CEO at institutional investors advisory firm Currency Research Associates.

Investors are still scrambling to figure out the size of those trades and how much of the cheap funding was deployed in equities.

Calculations made by hedge fund research firm PivotalPath show that hedge fund strategies most affected by a yen rally are global macroquantitative and managed futures, as they have short exposure to the Japanese currency. A spike in the yen this month indicates a loss of between 1.5% and 2.5% in August for those funds’ indexes, according to the firm’s exposure model.

“It’s very, very hard to know what the actual size of those positions are and how much is hedged and how much isn’t hedged, and therefore how much pressure is on,” said Kathy Jones, chief fixed income strategist at Schwab. “When you get hedge funds that are leveraged, and maybe there are derivatives involved, you get a pretty sizable reaction.”

UNWIND OF RISK

Some money managers or trading strategies had already been reducing risk in the past few days.

“Momentum certainly has been unwinding quite a bit in the past few days, and that’s cutting across all asset classes,” said Mike Gleason, director of equity alternative strategies at Acadian. “So, you have this response mechanism of multiple asset classes responding in kind.”

Steve Sosnick, head trader at IBKR Securities Services, said trading Sunday night and on Monday’s open “had the feel of forced selling.”

“There was a certain ‘get me out’ quality to the pre-market and opening trades that since have subsided,” said Sosnick.

Hedge funds started unwinding risk roughly two weeks ago, when stocks started to fall. Morgan Stanley estimated on June 25 that macro hedge funds could sell USD 110 billion in the coming weeks if markets further deteriorated.

For some investors, the fact that the Nasdaq fell 10% below its record of 18,647.45 points on July 10 poses another challenge for a quick and sustainable bounce back.

“Most of the people haven’t unwound anything yet because they think it’s just a regular correction,” Currency Research Associates’ Lindahl said. “This is a serious thing, it’s not just the regular correction. You don’t have gap openings for 4% or 5% in major indexes, and then they recover. There’s a serious collapse that’s coming.”

On Monday evening, US indexes futures opened in the black, pointing to investors taking advantage of lower valuations.

“We’re seeing fair number of people who are looking to be buyers on this setback. I think that’s probably going to give us more of a two-way market,” said Schwab’s Jones.

(Reporting by Carolina Mandl and Laura Matthews in New York; editing by Megan Davies and Shri Navaratnam)

Indexes end with strong gains, rebounding from global market sell-off

NEW YORK – The S&P 500 and Nasdaq ended 1% higher on Tuesday as investors jumped back into the market a day after a dramatic sell-off, with recent comments by Federal Reserve officials easing US recession worries.

The Dow rose as well, but all three major stock indexes pared gains heading into the close and ended well off their highs of the day.

US central bank policymakers have pushed back against the idea that weaker-than-expected July jobs data means the economy is headed for a recession, but they have also warned that the Fed will need to cut interest rates to avoid such an outcome.

Stocks had sold off as weak economic data raised worries of a US recession.

Traders are pricing in a 75% chance the Fed will cut rates by 50 basis points at its next policy meeting in September, and a 25% chance of a 25 basis point reduction, the CME Group’s FedWatch Tool showed.

All major S&P 500 sectors ended higher, with real estate and financials up the most. Technology megacap Nvidia rose nearly 4%, giving the S&P 500 and Nasdaq their biggest boosts.

“The market had just gotten top heavy, but it did reprice a decent amount, particularly the Nasdaq, and people are coming back to the idea that with lower rates it should provide a support for stocks,” said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.

The Dow Jones Industrial Average rose 294.39 points, or 0.76%, to 38,997.66, the S&P 500 gained 53.7 points, or 1.04%, at 5,240.03 and the Nasdaq Composite advanced 166.77 points, or 1.03%, to 16,366.86.

The Nasdaq Composite is still up 9% so far in 2024, driven earlier in the year by strong earnings and optimism over artificial intelligence.

“While (recent) earnings were good, in many cases they weren’t great,” Meckler said.

Valuations have been stretched. The S&P 500 was last trading at 20 times forward 12-month earnings estimates, compared with its long-term average of 15.7, LSEG data showed.

Recent market concerns were exacerbated as investors wound down yen-funded trades, used to finance acquisition of stocks for years, after a surprise Bank of Japan rate hike last week.

The next big Fed event is Chair Jerome Powell’s speech at the Jackson Hole, Wyoming, on Aug. 22-24.

Uber shares jumped 11% after the ride-sharing and food delivery provider beat Wall Street estimates for second-quarter revenue and core profit, helped by steady demand for its services.

Caterpillar gained 3% after beating analysts’ estimates for second-quarter profit, as higher prices on its larger excavators and other equipment countered moderating demand in North America.

Volume on US exchanges was 13.52 billion shares, compared with the 12.48 billion average for the full session over the last 20 trading days.

Advancing issues outnumbered declining ones on the NYSE by a 2.59-to-1 ratio; on Nasdaq, a 1.93-to-1 ratio favored advancers.

The S&P 500 posted 12 new 52-week highs and seven new lows; the Nasdaq Composite recorded 31 new highs and 144 new lows.

(Additional reporting by Shubham Batra and Shashwat Chauhan in Bengaluru; Editing by Saumyadeb Chakrabarty, Shinjini Ganguli, and Richard Chang)

‘Turnaround Tuesday’ soothes nerves … for now

Investors in Asia will be hoping that the recovery in global sentiment and risk assets on Tuesday extends into Wednesday, although the rebound in US bond yields and the dollar may cool some of that optimism.

Nothing epitomized ‘Turnaround Tuesday’ more than the whoosh in Japanese stocks – a day after tumbling 12% in their second biggest fall on record, stocks rallied 10% for their third biggest rise on record.

In some ways, however, day-to-day swings of that magnitude based on not a lot of fresh or major market-moving news are red flags. They’re typical of more protracted and volatile downturns, and many investors are retaining a cautious stance.

That said, any respite is welcome. Implied yen volatility remains elevated but eased off on Tuesday, and Wall Street and MSCI’s emerging, Asian and world stock indices all gained more than 1%.

Fears of impending US recession will have been allayed further too, as the Atlanta Fed’s GDPNow growth tracker estimate for third-quarter GDP growth was raised to 2.9% from 2.6%.

Little wonder that US bond yields and the dollar rose. That’s a twin dynamic that is rarely positive for emerging markets, but if it is part of a broader market recovery and cooling off in volatility then investors may be more forgiving.

Emerging market participants will also note that the steep fall in US yields in recent weeks has more than offset the decline in stock prices. So much so that emerging market financial conditions are now the loosest since January, according to Goldman Sachs.

Wednesday’s calendar in Asia includes Chinese trade figures for July, the latest FX reserves holdings from China, Japan, and Hong Kong, and earnings reports from Singapore’s top bank DBS and Japan’s SoftBank Group.

China’s trade data will be under even particular scrutiny given the ratcheting up of US trade and tariff tensions. Export growth is seen quickening, a potential silver lining to the world’s second-largest economy still struggling under a property sector bust, weak consumer demand, and the threat of deflation.

Monthly changes in countries’ FX reserves holdings rarely have an immediate impact on financial markets, but anyone with an interest in the dollar’s reserve status will cast an eye toward the latest updates from Beijing, Tokyo, and Hong Kong.

That’s nearly USD 5 trillion of reserves, 40% of the global total. China holds the world’s largest stash, with USD 3.22 trillion, and Japan is the largest overseas holder of US Treasuries, with USD 1.13 trillion.

Several leading policymakers in the Asia and Pacific region are scheduled to speak on Wednesday, including Reserve Bank of Australia assistant governor Sarah Hunter, Bank of Japan deputy governor Uchida Shinichi, and Bank of Thailand governor Sethaput Suthiwartnarueput.

Here are key developments that could provide more direction to Asian markets on Wednesday:

– China trade (July)

– China, Japan, Hong Kong FX reserves (July)

– Softbank earnings (Q1)

(Reporting by Jamie McGeever)

Japanese shares rebound sharply in opening trade after rout

TOKYO – Japanese stocks rebounded sharply in early trade on Tuesday, after their biggest single-day rout since the 1987 Black Monday sell-off in the previous session.

The Nikkei rallied 8.1% at 34,004.22 as of 0026 GMT, while the broader Topix was up 8.57%.

The Nikkei plunged 12.4% on Monday in its worst performance since the October 1987 crash, as investors were shaken by last week’s plunge in global stock markets, US recession risks, and worries investments funded by a cheap yen were being unwound.

Monday’s collapse was a “reminder that it is next-to-impossible to diversify equity risk by region (or by sector or style) during major corrections or bear markets,” said Stephen Dover, chief market strategist and head of Franklin Templeton Institute at Franklin Templeton.

“Opportunity will arise, but in our view, it is premature to step in at this point.”

(Reporting by Brigid Riley and Vidya Ranganathan; Editing by Shri Navaratnam)

Oil prices rise over USD 1 on mounting concerns over Middle East supply

TOKYO – Oil prices rose in early Asian trade on Tuesday, reversing the previous session’s loss as concerns that an escalating Middle East conflict could hit supplies outweighed fears of a possible US recession that could hurt demand in the world’s top oil consumer.

Several US personnel were injured in an attack against a military base in Iraq on Monday, three US officials told Reuters, as concerns in the region mounted following last week’s killing of senior members of militant groups Hamas and Hezbollah.

US West Texas Intermediate crude futures climbed USD 1.18, or 1.6%, to USD 74.12 per barrel by 1022 GMT, or in early trade in Asia.

On Monday, both WTI and Brent benchmarks fell by 0.7-0.8% as a selloff continued on global stock markets. Oil’s slide was limited by worries Iran would retaliate for the assassination of a Hamas leader in Tehran may lead to a wider war in the Middle East.

On Monday, a senior ally of President Vladimir Putin arrived in Tehran for talks with Iranian leaders including the president and top security officials as the Islamic Republic weighs its response to the killing of a Hamas leader.

Israeli Prime Minister Benjamin Netanyahu faces anger in Israel and abroad over his handling of Gaza ceasefire talks which have faltered, three Israeli officials said, as fears mounted that the crisis could spiral into war with Iran.

(Reporting by Yuka Obayashi; Editing by David Gregorio)

Dollar down as US rate cut bets rise, yen surges

NEW YORK – A surge in the yen to a seven-month high led a broad dollar fall, as a slew of economic data last week raised the prospect of a US economic downturn and bigger interest rate cuts from the Federal Reserve.

The dollar index, which tracks the US currency against a basket of six others, was down 0.46% to 102.68, after sinking as low as 102.15, its weakest since January 12.

Against the yen, the dollar fell 2.04% to 143.5, close to the weakest level for the year. The euro was up 0.37% to USD 1.095, after rising as high as USD 1.1009, its strongest since Jan. 2.

Weaker-than-expected US jobs data, along with disappointing earnings reports from large technology firms and heightened concerns over the Chinese economy, have sparked a global sell-off in stocks, oil and high-yielding currencies in the past week as investors sought the safety of cash.

The selling continued on Monday, with US Treasury yields falling further, stock indexes in the red, bitcoin dumped and the dollar losing ground.

“When you zoom out and look at the big picture, whenever there’s a crisis in markets, it’s clear that there’s far too much leverage and everyone is crowded into the same trades,” said Adam Button, chief currency analyst at ForexLive.

Treasury yields have been falling sharply since last week, when the Fed kept the policy rate in its current 5.25% to 5.50% range while Fed Chair Jerome Powell opened the possibility of a rate cut in September.

But by Friday, after data showed the unemployment rate had jumped, expectations for rate cuts rose.

“Friday’s (non-farm payrolls) report was a bit of a shock to the global system, and markets are very worried that the US may no longer be a viable driver of global growth,” said Helen Given, FX trader at Monex USA in Washington.

The Japanese yen’s surge comes as traders aggressively unwound carry trades. So-called carry trades, where investors borrow in money from economies with low interest rates such as Japan or Switzerland to fund investments in higher-yielding assets elsewhere, have been popular in recent years.

“Whenever there’s trouble, the rush to the exit is so dramatic that it creates these incredible waves in markets that swamp related markets,” said Button. “You never know how much money is piled into the carry trade until it unwinds.”

On Monday, Fed fund futures reflected traders pricing a near 100% chance of a 50 basis point cut at the central bank’s September meeting, according to CME FedWatch.

“The Japanese equity sell-off during Asian trading spooked markets in a big way, coupled with the yen’s resurgence, and we may be seeing the so-called ‘panic spiral’ that many have been concerned about,” Monex’s Given said.

Meanwhile, the Swiss franc, another popular carry trade funding currency, was 0.83% higher at 0.85 to the dollar. The franc, a traditional safe haven, was also trading near a seven-month high.

The dollar found some relief against the British pound as the marked deterioration in global investor risk sentiment sapped demand for riskier currencies.

The depreciation of Mexico’s peso extended into its third day on Monday, and the US dollar rose 1.64% to 19.48 pesos, on investor risk aversion.

In cryptocurrencies, bitcoin and ether plunged on Monday to multi-month lows as investors a rushed out of risky assets. Bitcoin was down 15.11% to USD 53,094, heading for its largest one-day fall since November 2022. Ether was last down 21.25% at USD 2,374.70.

(Reporting by Hannah Lang and Saqib Iqbal Ahmed in New york; Additional reporting by Vidya Ranganathan in Singapore, Sruthi Shankar, and Sarupya Ganguly in Bengaluru; Editing by Christopher Cushing, Ros Russell, Christina Fincher, Nick Zieminski, and Jonathan Oatis)

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