(Bloomberg) -- Vishnu Varathan was on the seventh floor of his office in Singapore’s Asia Square on Thursday when the phones started ringing. The yen was surging and clients wanted to know what was coming next, quickly. 

“Price action was very fast,” said Varathan, head of economics and strategy at Mizuho Bank Ltd. “It created a huge dollar-yen squeeze that became contagious through the crosses. No doubt there’ll be more volatility to come.” 

The foundations for the yen’s biggest surge in nearly a year were laid in Asia after Bank of Japan Governor Kazuo Ueda and one of his deputies made comments that traders took as hints of a looming interest-rate hike.

A weak Japan bond auction added fuel to fire. Traders needed little encouragement to abandon bearish yen bets, sending Japan’s currency soaring nearly 4% at one point during the New York session Thursday. 

Yoshio Iguchi, managing director at Traders Securities, was awake and worried in Tokyo when the moves in the currency accelerated. “At that moment I had to deal with risk management against the flood of stop-loss transactions by margin traders and my hands were shaking with nervousness,” he said. “I didn’t know where the pair was going as it fell at such a fast pace.”

The frantic trading — exacerbated by thin liquidity, computer algorithms and furious covering of short positions in the yen — forced some investors to the sidelines. Yen watchers expect a lot more market swings, with US payrolls data due later on Friday the next likely catalyst.

Glued to Screens 

Nick Twidale is among those bracing for more volatility. He was glued to his computer screens at his office in Sydney’s Bridge Street as the action unfolded. His traders at FP Markets stayed late into the evening Thursday as they monitored moves in Europe, when the yen took a leg higher as more investors joined the buying frenzy. 

“It’s too tricky to trade these market moves, we were hitting liquidity gaps,” said Twidale, a 26-year market veteran and Asia Pacific chief executive at the broker. “If you’re at a desk, you’re just filling orders — it’s very difficult to make two-way prices when you’re seeing 4% moves in a day.” 

The dollar-yen pair started the trading day at just above the 147 level in Asia Thursday before plunging as low as 141.71 in New York. It extended the advance on Friday, rising as much as 1.1% against the greenback. Underscoring the challenge for traders, it had given up Friday’s gain at 4:22 p.m. in Tokyo and was at 144.35.

Options traders said investors were left “confused and unsure” following the roller-coaster ride, while others fretted that markets may be heading into a “dollar bear trap” this evening if US payrolls data surprise on the strong side. 

Some like George Boubouras are opting to watch the market action from afar. 

“I sat out,” said Boubouras, a three-decade investment veteran and head of research at hedge fund K2 Asset Management. “Markets were trading in one day instead of over one month the whole idea of a BOJ policy shift — and there’s probably a lot more moves like these to come.” 

‘Crazy Price Actions’

Those who are still in the market are preparing for the risk of two more rough sessions Friday. 

“Traders have been pushed into a pretty tight spot,” said Juntaro Morimoto, senior currency analyst at Sony Financial Group. “I’m watching the market from home between European and US hours to respond.”

Kyle Rodda knew it was going to be another busy day as soon as he checked his phone when he woke at 6:00 a.m. in Melbourne on Friday. He isn’t expecting much let-up.

“These are crazy price actions but it also shows that the markets are potentially at an inflection point,” said Rodda, an analyst at Capital.com. “It’s certainly a beginning of a trend — of markets pricing the BOJ is going to be hiking interest rates, and tighter spreads with the US.” 

--With assistance from Yumi Teso, Michael G. Wilson, Saburo Funabiki and Masahiro Hidaka.

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