Investors worry over 'flash crash' risk as Japan heads for long break, Latest Business News - The New Paper

Investors worry over 'flash crash' risk as Japan heads for long break

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SYDNEY: As Japan heads for an unprecedented market holiday, investors around the globe are fretting over the risk of a "flash crash" or violent spasm in currencies that can occur when traders are away and turnover is super thin.

Japanese markets will be shut from April 29 to May 6, easily the longest break in modern times, to celebrate Crown Prince Naruhito's enthronement.

Prudent investors are preparing with a variety of strategies, including cutting their holdings in the yen and increasing hedges on their foreign exchange exposures, several money managers and analysts said.

Some are looking deeply into the holdings of Japanese retail investors - known in the market as "Mrs Watanabes" - whose large wagers and herd behaviour can roil prices.

"We see the upcoming Japanese forex liquidity drought as offering danger for corporates, but perhaps opportunity for speculative accounts," said Mr Sean Callow, the Sydney-based currency strategist at Westpac.

"Corporates need to beware of the potential for dislocative price action as seen in January, triggering stop-loss orders and causing collateral damage even to non-yen forex pairs. Higher forex hedge ratios may be prudent."

Investors have already suffered two flash crashes this year when Japan was shut.- REUTERS