The Yen surged for the fourth consecutive day on Thursday, hitting a six-week peak, as traders abandoned their long-standing positions against the currency, and a sharp decline in global stocks prompted investors to seek out traditionally safe assets.
Whereas the US Dollar weakened against other currencies as traders increased their expectations for Federal Reserve rate cuts this year.
At the time of writing it was down 0.95% at 152.41 Yen, after dropping to 151.95 earlier in the London session, marking its lowest point since early May.
“This is a case of so many people all trying to find the door all at the same time. It seemed like everybody and his dog was shorting the Yen, it was the funding currency for the carry trade,” said Jane Foley, head of FX strategy at lender Rabobank.
Investors had been betting against, the Yen, given the slim likelihood of the wide interest rate gap between Japan and the US narrowing substantially.
This disparity has made US bonds and the Dollar appealing, driving the Yen to a 38-year low earlier this month and prompting intervention from authorities, Reuters reports.
In addition, the Yen was bolstered on Thursday by its safe-haven currency status amid an ongoing tech-driven sell-off in global stocks.
Investors have been swiftly exiting carry trades, where they borrow low-yield currencies to invest in higher-yield ones like the Dollar. As they reverse these trades, they repurchase the Yen, driving its value up.
Moreover, the Dollar index, measuring the currency against six rivals, fell 0.14% at the time of writing to 104.24.
The greenback typically strengthens during a stock market sell-off, but analysts noted that increasing expectations for a Federal Reserve interest rate cut were exerting opposing pressure.
Elsewhere, the Euro rose 0.1% to $1.0847 on Thursday whilst Sterling eased 0.15% to $1.2886.