Nikkei’s Black Monday 2.0 triggers contagion talk

As the Japanese yen surges, investors are grasping for correlations — past events that provide some perspective on what might be in store for currency markets.

The search has turned frantic as the Nikkei 225 Stock Average leads a global sell-off in stocks. The Bank of Japan’s July 31 rate hike was followed by a softer-than-expected US employment report. On Monday, the Nikkei plunged 4,451 points, more than Black Monday in 1987.

Arguably, no good corollary exists thanks to uncertainties surrounding Japan thanks to the “yen-carry trade.” Though the US dollar is by far the global reserve currency, borrowing cheaply in yen and deploying those funds in higher-yielding assets elsewhere became as crowded a trade as history ever saw.