Japan At Risk of ‘Flash Crash’ 💴

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Japan At Risk Of ‘Flash Crash’

Japan’s monumental 10-day holiday to celebrate the enthronement of Crown Prince Naruhito has sparked concern among investors about a potential ‘flash crash’ in the FX market….Not again!

The Japanese stock exchange will be closed for a total of six trading days, which overlaps with a number of shorter holidays in China and Europe too. But what’s the fuss about? Its all about liquidity. 

With a number of markets closed simultaneously, liquidity will be very thin which exposes the market to above average fluctuations in price (flash crash) and which could cause significant damage to asset prices. And it’s not the first time we’ve seen this happen. 

In January a similar effect occurred with the Japanese Yen plummeting 4% in just a few minutes after the close of the US market as liquidity dropped. The increased risk of a second crash has prompted the Tokyo Financial Exchange to recommend its retail clients beef up their margin deposits or lighten their positions ahead of the long holiday. Yikes!

Analysts have suggested taking a long position on JPY/AUD to offset the risk of a flash crash, given that the opposite position (long AUD/JPY) is a popular carry trade among Japanese retail investors.

Scary times ahead…Let’s see if the thunderclouds do in fact bring a flash crash. 

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