Last Friday, USDJPY traded sharply higher on rumors of official intervention by the Bank of Japan.

Another rumor that was blamed by some traders for the sudden strength in the USDJPY rate was that BOJ Governor Masaaki Shirakawa was getting ready to resign, although the latter the rumor was quickly denied by the BOJ.

BOJ Keeps Mum on Rumored Intervention Friday

Although the BOJ confirmed that it had intervened in the forex market the previous week to the tune of 2 Trillion Yen or roughly $23 billion, it failed to confirm another bout of intervention had taken place last Friday.

The original round of official intervention took place throughout the trading day and resulted in the U.S. Dollar gaining roughly three percent against the Yen.

Friday's session saw USDJPY surge from the 84.51 level to 85.38 in the space of only one hour and the rumor driven spike took place at roughly mid day Tokyo time.

Nevertheless, the rally was short lived, with the rate retreating back down almost as fast as it had gone up as official confirmation of intervention failed to materialize.

This price action contrasted with that seen during the September 15^th unsterilized intervention round by the BOJ which pushed the USDJPY rate substantially higher with no significant reaction to the downside.

BOJ Presence Making USDJPY Traders Nervous

Some forex Yen traders suspect the Japanese central bank is holding back on confirming whether or now they entered the market on Friday in order to make currency traders and dealers "jittery."

Others speculate that the move was caused by the apparently false rumor of Shirakawa's resignation, which was subsequently denied.

Another explanation for the rally centered around it being prompted by an unconfirmed Kyodo news wire report out of Japan that the BOJ had again intervened.

Adding to the tension in the market were comments made on Sunday during a speech at a forum hosted by the Japan Society of Monetary Economics in Kobe, where Bank of Japan Governor Shirakawa stated that, "We are ready to implement appropriate action in a timely manner if judged necessary,".

He went on to say that, "We are watching how the yen's current gain affects the Japanese economy," and added that, "We have to pay more attention than before to downside risk to the economy."

Unconventional Measures Contemplated in Japan

The forex market now awaits next week's substantial set of economic data coming out of Japan to provide further direction for the market.

In addition to the upcoming slew of economic data releases, a special session of the Japanese Parliament, the Diet, is scheduled for this Friday, October 1^st.

The special session was called for members of both ruling and opposition parties to put pressure on the BOJ to take "unconventional measures" which include adopting a specific inflation target and a program for the Japanese government to buy back government debt.

Despite the fact that the BOJ has not admitted intervening in the forex market on Friday; the central bank has succeeded somewhat in making traders think twice about buying the Yen, in spite of the Japanese currency's strong prevailing strengthening trend.

While the Yen still appears to be strengthening, many pundits are saying that it is more the weakness of the U.S. Dollar rather than strength in the Japanese currency which is making the Yen appreciate.

Despite Friday's short lived rally, USDJPY ended the week -1.8% lower versus the previous weekly close.