Japan’s woes cast a global shadow, but the reaction was overblown: ALEX BRUMMER

Amid the stock market turmoil of the past few days, one phrase keeps popping up: “The yen carry trade.”

The sudden and alleged expertise in an investigated trading phenomenon that is supposedly behind the surprising swings in Tokyo stocks is astonishing.

My knowledge comes from personal experience. In the early 1990s, interest rates in the UK rose to phenomenal levels as John Major’s government attempted to follow the example of the German market and stay within the Exchange Rate Mechanism.

My planned escape route from a 12.75 percent mortgage rate (people complain about a standard variable rate of 7.25 percent these days) was to take out a yen-denominated mortgage with an interest rate of less than 2 percent.

Everything was going swimmingly until a geopolitical shock – Iraq’s invasion of Kuwait – sent the yen soaring against the pound.

My carry trade went horribly wrong and I was automatically switched from yen to pounds and a much larger mortgage.

That’s more or less what’s been happening lately. The combination of a weak yen and relatively low Japanese interest rates made it very profitable for professional investors to borrow yen and invest the money in other higher-yielding assets, such as the Mexican peso.

As the yen soared after the Bank of Japan raised its key interest rates, global traders dumped assets bought with borrowed yen.

The liquidation of about half of the roughly £385bn of yen-denominated stocks, bonds and currencies triggered the biggest sell-off on the Tokyo market since 1987.

As is often the case in financial markets, the reaction was overblown and Japanese stocks rebounded in trading on Tuesday, recovering around 10 percent.

When markets fall on a scale like this week, analysts look for explanations. There have been many theories citing the US recession and the plunge in technology stocks as the main causes.

Sentiment about the US economy and the Magnificent Seven is changing. There is a belief that valuations of the entire artificial intelligence (AI) revolution have been exaggerated.

It would be a supreme paradox. One of the reasons stock markets have been so volatile is the impact of algorithm-driven trades that have largely been untouched by human hands. Artificial intelligence means those trades are executed ever more quickly and efficiently.

Silicon Valley reaps what it sows.

Spinning machine

After many years under the shadow of WPP ownership and control, Britain’s cutting-edge global communications agency FGS Global has finally managed to emerge from the shadows. Private equity giant KKR has bought a majority stake in WPP for £629m, valuing the company at £1.3bn.

At its core, financial PR is a people business and the partners, including Finsbury founder Roland Rudd, will be incentivised with a 25 per cent stake in the deal.

However accommodating WPP has been as an owner, financial communications has always been seen as peripheral to the core creative drive.

WPP has other agencies such as Hill & Knowlton and Burson (BCW), which focus more on corporate image and product. Outgoing WPP president Roberto Quarta was a key figure in closing the deal with FGS.

Much of global financial communications, a major source of revenue in M&A and IPOs, is now in the hands of three dominant players: FGS, Brunswick and Teneo.

The way City firms are leading the way in the financial services marketing space speaks to Britain’s pre-eminence in business services delivery. FGS is hopeful that it can reap the benefits of new technologies, particularly CRM systems, with KKR’s help.

The ultimate goal is a sale or issue of shares within three to five years, markets permitting.

Once you pop it…

Pringles is back in business. Created by Proctor & Gamble in 1968, the saddle-shaped potato chip brand was sold to Kellogg’s in 2012.

Recently spun off as part of the independent snacks group Kellanova, Mars has now entered the business with a £26bn bid, including debt.

Privately held Mars has recently been on a buying spree, acquiring British chocolate maker Hotel Chocolat for £521m in November last year.

As reserved as ever, the controlling Mars family is betting heavily on snacks without making concessions to current trends towards healthier eating.