The yen jumped more than 2% against the dollar after the weak inflation data was released, triggering a new round of speculation about whether Japan will intervene in the market to support its currency.

The yen suddenly surged to 157.44 against the dollar within minutes of news that U.S. core consumer prices rose at their slowest pace in nearly three years. Last week, the yen hit its lowest point since 1986, prompting Japanese authorities to strongly signal again that they were ready to take action to strengthen the currency if necessary.

That made market participants nervous about any sudden moves in the yen. While the yen quickly fell more than 3 yen, traders were divided over whether the quick rebound was the result of unwinding of options trades or a sign of intervention by Japanese authorities.

“There is a possibility of intervention, but it’s unlikely,” said Win Thin, head of global market strategy at Brown Brothers Harriman, noting that recent interventions typically lead to more volatility.

The yen has continued to slide over the past year, making it the worst performing G10 currency. Even after the Bank of Japan raised its short-term policy rate in March for the first time since 2007, market sentiment remained subdued and bearish bets have dominated the market.

The Japanese Ministry of Finance is said to have purchased 9.8 trillion yen in two interventions on April 29 and May 1 to prevent the yen from depreciating. Finance Minister Shunichi Suzuki has said he is very concerned about the impact of rapid and unilateral exchange rate changes on the Japanese economy.

"The yen has fallen sharply and now looks like a good time to close short yen positions. In my opinion, this is just an unwinding of short yen positions," said Takafumi Onodera, head of sales and trading at Mitsubishi UFJ Trust Bank in New York. He added, "If it was intervention, the yen should have risen to at least around 156 against the dollar."

Kenneth Broux, head of corporate research for foreign exchange and rates at Societe Generale, said this is undoubtedly a big market, but it cannot be said to be related to intervention. CPI is the trigger factor, and the plunge in the dollar against the yen is more of a trigger for stop losses rather than intervention.

The article is forwarded from: Jinshi Data