Momentum Acceleration (2)

Throughout the election, Prime Minister Sato had campaigned on a weaker yen. So when he won, the yen’s value began a gradual slide almost at once.

Looking thoroughly satisfied, the Prime Minister said, “The mood’s ripe. Time to announce the policy.”

Japan had endured more than twenty years of chronic deflation. On top of that, it was struggling in export markets against Korea and Taiwan.

A weaker yen solves everything.

Export prices would fall, sharpening Japanese companies’ competitive edge. Toyota, Sony, Panasonic—they would reclaim leadership of the global market. At the same time, higher import prices could finally pry the country free of its long deflationary trap.

The only question was how far to go.

“Prime Minister, what would you consider the appropriate level?”

“We need to demonstrate resolve. We’ve tried to kill deflation again and again and failed every time. This time, we show them it’s different.”

The Minister of Economy, Trade and Industry voiced a concern. “If we push it down too sharply, neighboring countries may push back.”

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Korea and Taiwan were of no real interest. The country that actually mattered was one.

“And the United States?”

The Foreign Minister answered. “We’ve been in continuous contact with the White House, making our case. America itself ran quantitative easing after the 2008 financial crisis, so they’re prepared to look the other way so long as we stay within a comparable range.”

“True. There was no direct criticism at the G7 meeting after my inauguration either.”

“Then perhaps we can go a little harder?”

Target depreciation, potential G7 blowback—especially from the United States—domestic and international reaction: experts locked themselves in rooms and wrestled every variable until they settled on an appropriate scale.

A few months later, the Governor of the Bank of Japan ‍‍‌‌⁠​​⁠‌​​‍​​‍​‌​⁠‍‌‍⁠⁠‌⁠‌‍‌‍‌‌‌‍⁠​‌​‌​‌‍‌‌‌⁠‍​​‌‍⁠‌‌⁠⁠delivered a historic announcement.

Seventy trillion yen. Japan had committed to flooding the market with money equal to roughly fourteen percent of its GDP.

Business news channels broke the story as a special report.

Global markets went into an uproar. The United States had run quantitative easing to climb out of the financial crisis, but nothing on this scale. The size of the program was itself a demonstration of the Japanese government’s will.

Speculators took that signal at face value and piled aggressively into short yen positions. In a single week, the yen lost five percent of its value.

So far, exactly as I saw in the future.

But from here on, the future had to be rewritten.

His real position size was one hundred trillion won. Capital deployed: two trillion—at fifty times leverage.

Seo Minjae had warned him. “With fifty-to-one leverage, a two percent rebound forces liquidation.”

“Which is why we strike only when a rebound is impossible. We enter once the downtrend is already formed.”

Immediately before the policy announcement—right before the yen began to fall—they had already built a twenty-trillion-won position. That way, every yen of decline would be absorbed as profit. The remaining eighty trillion would be used to drive the price still lower. The further it fell, the larger the gains.

Lee Jaseung laid out the strategy. “With the remaining eighty trillion, we have to move a market worth a thousand trillion. That means we hit the market’s reaction points with absolute precision.”

The market had many participants, each with a different temperament: algorithmic traders running automated programs; technical traders chained to their indicators; momentum traders who answered to acceleration; macro funds that moved on macroeconomic data. With eighty trillion won, Jaseung intended to touch the “signals” that made each of them react.

“Which group is easiest to pull in first?”

“The algorithms. They’re automated, so predictability is high.”

“Then we start with the algorithms.”

More than seventy percent of modern foreign exchange trading was algorithmic. Machines ruled the market—and for that very reason, the market had grown faster, more efficient, and far easier to anticipate. Algorithms had no emotion. They followed only data and pattern.

“Which indicator do we need to trip to make them react?”

“First, the algorithm’s bible: the two-hundred-day moving average.”

The two-hundred-day moving average. It was the dividing line of long-term trend. Currency value above the line meant a long-term uptrend; below it, a long-term downtrend.

“The moment that line breaks, countless algorithms will all receive a sell signal at once.”

Lee Jaseung nodded. The moving average—that was the indicator he needed to check in the future.

How far can the market’s own force carry it down, and from where do I have to shake it myself? I need to know exactly.

It wouldn’t be difficult. After hearing in detail from Seo Minjae which indicators to verify, Jaseung began looking for someone who could sit with him at three in the morning. For moments like this, the best choice was always the same: the future vending machine himself—Han Juhyeong.

He called him at once.

Lee Jaseung had entrusted the currency hedge fund’s execution to Seoseong Securities.

Seo Minjae said, “I can’t handle a hundred trillion alone. Let’s disperse it. Split the whole position into about ten pieces and route the orders through different brokers. Each one only sees a tenth of the picture, so they can’t reconstruct our real strategy.”

“Do it.”

They moved immediately. Major Korean brokerages, global investment banks like Goldman, Japanese houses like Nomura, and key brokers in London and Hong Kong—ten financial institutions in all signed prime brokerage agreements. Each trading desk was instructed to take positions of different sizes, at different times, with different maturities.

The strategy team lead relayed the order at once through his headset.

“Team A—execute two hundred billion. Slice it into hundred-contract tickets and fire!”

Identical instructions went out to the other teams simultaneously. Twenty trillion won of sell orders began to bleed into the market.

Jaseung had deliberately chosen a low-liquidity window—the seam between the New York close and the Asian open—and concentrated the selling pressure there. The twenty-trillion-won order was so carefully dispersed that it looked like unrelated traders hitting the market at the same time.

Five minutes later, the dollar-yen rate slipped cleanly through the two-hundred-day moving average.

In that instant, the system began to evolve on its own. Countless algorithms detected the moving-average break at the same moment and started selling automatically. No human judgment was required. The machines simply did what they had been programmed to do.

A data analyst shouted, voice tight with excitement. “Algorithm response is live! Volume is surging!”

“Per-second volume is triple the usual rate!”

The first small wave rose.

Watching it, Seo Minjae felt a chill crawl up his spine. We hit it dead center. Out on that vast ocean, they had found the exact point that would birth a tsunami. Maybe—just maybe—

Eighty trillion really could move a thousand-trillion market.

The thought sent a shiver through him. But Lee Jaseung neither excited himself nor surrendered to the thrill. Without pausing for even a second, he moved straight to the next stage.

Next target: the quants.

The so-called quant analysts—technical traders, the true believers in mathematical models. He recalled a conversation he’d had with Seo Minjae in the future.

“If you went back, what would you change?”

“I should have deployed more capital at the moment the quants reacted.”

This time, they would.

“Now we hit the indicators the quants respond to?”

“That’s right.”

“Park the heaviest capital here. Forty trillion.”

Quant analysts. To them, the market was nothing but a set of mathematical patterns.

An analysis report went out to the quant teams of the investment banks.

“RSI still hasn’t entered oversold territ—wait. No—it just did!”

In the brief moment when the market seemed to stall, the Makers fund raised its second wave. Simultaneously, sell volume was dumped into four carefully chosen foreign-exchange venues. This time leverage was cranked to the maximum.

The major technical indicators lit up in unison.

“Technical signals are aligning. Every indicator on dollar-yen is pointing the same way.”

“All yen-weakness signals. Short-term, medium-term, long-term—all of them.”

Quant analysts around the world arrived at the same conclusion. The yen was going to fall. And that fall would be faster and deeper than expected.

“We need to build short yen positions.”

“How much leverage?”

“Double the usual. This is a once-in-twenty-years opportunity.”

They began feeding increasingly aggressive sell orders into the market. Individually, each trader was only a droplet—but droplets gathered into streams, streams into rivers, until at last a full-fledged downtrend had been born.

Algorithms had reacted first; the quants had followed. So who would appear next?

The momentum traders. The faction that bet on acceleration.

“Yen depreciation is accelerating.”

“What matters isn’t how far it falls—it’s how fast it falls. Right now we’re at an all-time high!”

They lived by a single logic: what rises keeps rising; what falls keeps falling. Investors who believed in the market’s acceleration. Momentum-specialist hedge funds poured hundreds of billions of dollars of orders into the market.

The result: a five percent drop in the yen’s value.

And at that moment, a new class of participants entered the field. The cast expanded beyond the financial world into industry itself—export companies that competed with Japan.

The yen’s faster-than-expected fall sent those exporters into a panic.

“The yen’s lost five percent in a matter of days. If this continues, Japanese firms get a massive edge.”

Take Korea. Most of its large conglomerates were exporters—autos, appliances, shipbuilding, steel—every one of them locked in competition with Japanese rivals. And now, overnight, those rivals had been handed permanent discount coupons. Worse, the discount could still deepen.

“At this rate it could fall twenty percent. Our products would lose all profitability.”

“We have to hedge the currency. No debate.”

What came to mind then was the hedging method that had lately become fashionable across the business world.

“Let’s take a short position on the yen ourselves!”

“What? We’re a manufacturing company, not a hedge fu—”

“Everyone else is doing it. Hanyeong Auto, KG Electronics—they’re all short the yen. You want us to be the only ones sitting this out?”

The decision wasn’t confined to Korea. American automakers and Taiwanese electronics manufacturers made the same move.

The next morning, exporters’ currency-hedge orders poured into the market. Short positions piled up across the board. Securities firms that had already been dumping yen-short products like mad continued to sell them as fast as they could print them.

Clients made money when the yen fell. And the firms that sold those products? They lost—because a falling yen meant they owed their clients. How did a securities firm manage that risk? By shorting the yen itself. If a client made a million won on yen depreciation, the firm made a million won shorting the yen in the open market and kept the books balanced. That was the hedge.

And this is where the chain reaction starts.

Clients bought yen-short products. Securities firms shorted the yen to hedge them. That shorting pushed the yen lower still. Clients thought, It’s falling again? Hell yes, and bought even more product. The firms shorted still more. Product sold faster. Shorts multiplied faster. More. More. More—BOMB.

Short volume detonated across the market.

And what sensed that massive flow?

“…The algorithms. Again.”

Algorithmic selling summoned the quant analysts. A full downtrend drew in the momentum traders. All of it triggered panic among exporters. Financial institutions then dumped shorts to hedge, which re-triggered the algorithms.

A feedback loop. One participant reinforced the next, and the reinforcement circled back to the start, pulling out a still stronger reaction—a perfect closed circuit.

“From here, the market will reinforce itself.”

In a single week, the yen fell a total of eight percent. A shift that normally would have taken months had been compressed into seven days.

Lee Jaseung smiled.

“I wonder if anyone can actually break this.”