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Volatility Spike at the Tokyo Fix Sends Dollar Soaring…and Tumbling

Price action ramped up at this morning’s 9:55am Tokyo Fix as a surge in orders ran into thinner liquidity conditions. The volatility was exacerbated by the fact that this was not only a month end, in Japan it was the fiscal year end fix.

A surge of US dollar buying saw it jump sharply, with a gap even in the normally very liquid USD/JPY from below 108.00 to above 108.70. Elsewhere, EUR/USD fell from 1.1025 to 1.0985, but the real action was in Cable, which fell from 1.2400 to 1.2250, and AUD/USD which fell to 0.6070 from 0.6080.

The Tokyo Fix is actually a point in time reference rate rather than a fixing window, therefore the same chaos may not be repeated at today’s London 4pm WM Fix, but the events in Japan have heightened nerves – analysts at InTouchFX write in a morning brief for Europe, “The month- and quarter-end shenanigans have started early. As one source puts it, “There was a mad scramble for a time stamp.”

One dealer spoken to says liquidity was about as normal as it gets in the current environment, adding, the market was “overwhelmed” with the demand for liquidity in a very short space of time. “Just look at how the market settled back afterwards,” the dealer observes. “This was a one-off event – the rest of the day was pretty quiet.”

Another dealer notes, “We just had a rush of orders to buy dollars at the Fix, it was madness. We told our clients this would trigger a large move and they didn’t care, they just wanted their year-end dollars, so we filled them as best we could.”

Since the Fix, as noted, conditions eased dramatically, with most currency pairs retracing their steps, at the time of writing, the euro has continued to weaken somewhat, while the AUD has recovered all its losses and then some to trade at 0.6130.

Colin Lambert

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