Japan's Intervention Speculation Ignites Amidst USD/JPY Plunge
The USD/JPY exchange rate plummeted from 163.70 to below 160 as traders speculated about whether Japan intervened in the market or if it was just a result of aggressive short-covering ahead of the Bank of Japan's policy decision.
The Yen had already strengthened broadly in the European session, gaining around 100 pips against the Dollar, as investors unwound their short positions. However, the accelerated decline during US trading hours came as broad Dollar weakness spread following softer-than-expected US GDP and June PCE inflation data.
Market conditions were ideal for intervention, with a weak Dollar backdrop reducing the amount of official buying needed to generate a large decline in USD/JPY. However, some analysts argue that the move can also be explained by an aggressive unwind of short Yen positioning alone.