Throughout much of the day Wednesday, the yen was on the rise but failed to cross the 80 level. Just before 5 p.m., however, the Japanese currency suddenly broke through. At first it bounced off its all-time high of 79.75, but then a wave of yen buying, predominantly against the U.S. dollar but also against the Australian dollar, swept through the markets.
Integral Development, which operates electronic trading networks, saw a flood of yen buying out of Japan. Volumes were eight times normal, said Harpal Sandhu, president of Integral. Some 90% of the trades were for less than $100,000. Typically at that time of day, 40% of the trades are from individual investors, Mr. Sandhu said.
"We think there were Japanese retail traders who were placing orders prior to going to work," Mr. Sandhu says.
Many of the trades appeared to have been stop-loss orders left in the market which would automatically buy yen as the currency hit certain levels. Others were unwinding so-called carry trades, which required them to buy yen and sell other currencies.
Conditions quickly deteriorated. Banks widened the gap between the prices where yen could be bought or sold to 50 or 100 so-called pips—tiny increments of currency prices. In normal trading, spreads are around 0.8 to one pip.
At Barclays Capital, the bank's electronic trading system went offline for its routine 15-minute reset at 5 p.m. Amid the heavy trading, the bank's risk management systems delayed the restart until 5:29 p.m.
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