What happened during the Japan market collapse?

What happened during the Japan market collapse?

At beginning of August 2024, a slew of weaker US macro data including unemployment and PMI weakens USD, and triggered the unwinding of USDJPY pair trade or other carry trade denominated by cheap JPY/cheap Japan rate.

The yen carry trade/pair trade was pretty crowded consensus back then, immediately triggered automatic loss-cut of many hedge funds in the next few days , especially quant/macro trades.

This was exacerbated by another move earlier this year - China govt banned quant fund domestically, so most quant fund in China tried to find another big battlefield with sufficient liquidity (and better to be at same time zone). The answer leads to Japan.

Hence combined the above 2, we see a tsunami level collapse took place in China in 2015 take place again in Japan, 10yrs later.

I was having lunch with my sovereign fund good friend, and we were speechless about Nikkei moving from -7% to -13%, just within lunch time.

How did we handle?

Despite adding shorts to defy, but the fast 2-day free fall of 18% at index level, 30-40% at individual stock level, still force us to cut loss. But one thing we did is we take the chance to swiftly add back qualify names. This helps us survive August.

The quant fund that played around China market in 2015 may improve their algo, while some new AI quant fund may join the big casino. One thing unchanged is the sense of fear human holds sometimes may not necessarily a bad thing - at least human fears cutting loss at bottom, while machines don't.