The collapse of global markets over the past twenty-four hours reflects more the collapse of the so-called “carry trade” that investors use for high-yield investments than a sharp change in the US economic outlook, analysts told Reuters.

While weaker-than-expected US jobs data was the catalyst for the market sell-off, with Japan’s Nikkei on Monday posting its biggest daily drop since the Black Monday sell-off of 1987, employment data were not so weak as to be the main driver of such violent movements, they added.

Instead, the answer likely lies in the further easing of carry trades, where investors borrow money from low-interest-rate economies such as Japan or Switzerland to fund investments in higher-yielding dollar or euro assets.

These practices are evident, as the yen has strengthened more than 11% against the dollar since hitting 38-year lows just a month ago.

An Asian investor, who asked not to be named, said some of the biggest systematic hedge funds that trade on signals from algorithms began selling shares after the Bank of Japan’s surprise rate hike last week fueled expectations of further tightening.

While the exact numbers and specific position changes in stocks are hard to pin down, analysts suspect that crowded positions in US technology stocks, funded by carry trades, explain why they are also taking the biggest hit.

By 14.23 GMT on Monday (5:23 p.m. Greece), the Nasdaq was down more than 8 percent so far in August, compared with 6 percent for the broader S&P.

The carry trades have sparked a boom in cross-border yen borrowing to finance trades elsewhere, ING said. Data from the Bank for International Settlements suggests that cross-border yen lending has increased by $742 billion since the end of 2021, the bank noted.

As hedge funds typically finance their bets through borrowing, their adjustments exacerbate market moves, some investors said.

Banks provide leverage to hedge funds, essentially a loan to invest capital, which boosts hedge fund returns, but can also increase losses.

A note sent by Goldman Sachs to clients on Friday showed that gross leverage by Goldman Sachs prime brokerage, or the total amount hedge funds have borrowed, fell in June and July but remained near a high of five years.

While macro funds may be involved in trading yen-related currencies, many exchange-traded hedge funds, due to a June short-selling ban in South Korea and regulatory opposition to the same practice in China, had focused on Japan, the investors said.

Traders now expect a cut in US interest rates of more than 120 basis points by the end of the year.