"It'd have caught some by big surprise."

The yen, a haven asset, has strengthened against all its major counterparts over the past 12 months as concerns over global economic growth mounted and stock tumbled in December. It strengthened 2.7 per cent against the dollar last year, the only G-10 currency to gain versus the greenback.

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That hasn't stopped investors in Japan from piling money into foreign currencies as the central bank's negative-interest-rate policy made the yen a source of cheap funding. Individuals boosted their net Aussie long positions by 20 per cent in the month through December 18, according to the latest data from Tokyo Financial Exchange Inc. These retail accounts' net Turkish lira long positions were also at a four-month high.

These investors may have been forced to exit positions after the yen advanced almost 1 per cent against the dollar on Wednesday, according to Ray Attrill, head of FX strategy at National Australia Bank in Sydney.

"We can only speculate on whether the behavior of Japanese retail FX accounts, suffering further losses on short yen positions overnight and being forced to exit, was an initial catalyst for the scale of the moves," he said.

Blame Apple

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Flash crashes have happened before in early Asian trading when liquidity is thin. The pound plunged 6 per cent in two minutes on October 7, 2016 amid concerns over Brexit and speculation of a "fat finger." Thursday's wild moves started around an hour after Apple cut its fiscal first-quarter revenue, with chief executive Tim Cook saying they were surprised by the magnitude of the slowdown in the Greater China region.

"The Apple news is driving safe haven flows, which have seemingly triggered a flash crash in FX," said Brad Bechtel, global head of foreign exchange at Jefferies LLC.

That added to already fragile sentiment in a week when a manufacturing gauge in China signalled contraction for the first time in more than two years, while the Federal Reserve Bank of Dallas said that its factory index shrank.

With Japan on a four-day holiday this week, traders said they struggled to handle a flood of sell orders with pricing erratic. As the yen advanced to 105.50 against the dollar, others were forced to pile in to cover their short positions, traders said.

While the sudden move caught currency markets by surprise, the takeaway is a little simpler, traders said. With uncertainty still hanging over the US-China trade war, don't be surprised if the yen repeats last year's performance, they said.

Bloomberg