Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

Japanese stock investors, especially hedge funds, have had a rough ride this year. Volatility is the highest among the world's 15 largest bourses, beating traditionally unsettled exchanges such as China or Brazil.

Conditions weren't this difficult before Haruhiko Kuroda took over as Bank of Japan governor. Much of the issue is the way he has rocked the exchange rate of the Japanese yen as he meanders between surprisingly bold stimulus measures and unexpected pauses.

Rocking Tokyo
The Japanese benchmark is the most volatile among major stock gauges in the world
Source: Bloomberg

To be sure, equity investors also have much cause to thank the former chairman of the Asian Development Bank. The Nikkei 225 has gained 27 percent since April 9, 2013, when he took over. That number, however, would be much higher were it not for the 12.9 percent drop this year. Shareholders might put up with even less return if they got a break on volatility.

Putting it into numbers: Using weekly data, on average 10-day volatility for the Nikkei 225 since Kuroda took office has been 22.4 percent, compared with 19.6 percent in the previous three years. While it makes sense that the central bank would impact stock markets, that relationship is exacerbated in Japan because of the weight that the yen has on the value of companies in this export-oriented economy.

Volatile Tenure
Japanese stock volatility has increased since Haruhiko Kuroda took the reins of the central bank
Source: Bloomberg
* Chart shows monthly data for visualization purposes.

A regression using weekly data on the percentage changes for both the yen and the Nikkei 225 index over the past 10 years indicates that 32.6 percent of the moves in the stock yardstick can be explained by the currency. And volatility for the yen has spiked since Kuroda took over, which in turn has dragged stocks along.

Right now, the yen shows the highest one-week implied volatility among currencies of the Group of 10 developed economies. On the same date in 2012, it exhibited less than half the variability and ranked eighth in that basket. The change can be partly explained by traders' expectations of even more stimulus, which were met instead with a July 29 statement that the Bank of Japan was taking some time to evaluate the effects of earlier moves.

The Raciest
The yen sports the highest expectations of variation among developed world currencies
Source: Bloomberg

Those traders have plenty of scars from Kuroda's moves. His initial announcement of a huge quantitative easing plan, in April 2013, beat most expectations and left a trail of losses for macro funds. The pattern was repeated, including when the governor officially sent benchmark rates into negative territory in January. The pain wasn't because the moves were harmful, but rather because they came as a surprise, pushing volatility beyond the calculations of portfolio managers.

There is little stock investors can do. As long as Kuroda keeps currency markets on the back foot, equities will gyrate. The governor should become better at communicating the results of his experiment: A bit more clarity would go a long way. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Christopher Langner in Singapore at

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Paul Sillitoe at