MOF Intervention Sends Yen Soaring as BOJ Meeting Looms

The Japanese yen surged on Thursday, experiencing its largest rally in months, after suspected intervention by Japan's Ministry of Finance (MOF). The USD/JPY pair dropped almost 600 pips from its high to an 11-week low, while the EUR/JPY and GBP/JPY pairs also saw significant declines. These moves were reminiscent of the MOF's intervention on April 30.

The extreme volatility seen in the currency market was likely due to traders being too short the Japanese yen. According to the latest Commitment of Traders (COT) report, gross short positions among asset managers increased by 23.5k contracts last week alone. The conditions for a reversal or bearish shakeout were clearly in place.

The focus now shifts to today's Bank of Japan (BOJ) meeting, although much of the excitement may already be behind us. The BOJ is widely expected to leave its policy rate unchanged, with Governor Ueda's guidance being the main point of interest. A slightly hawkish tilt from policymakers could help extend Thursday's gains.