(Bloomberg) -- The yen surged the most since March against a broadly weaker dollar after softer-than-expected US payrolls data, prompting traders to unwind short positions.

Japan’s currency rose as much as 1.4% to 142.08 per dollar, a level last seen on June 22. The Bloomberg gauge of the greenback fell the most since March after payroll growth dropped below economist estimates for the first time in more than a year. 

The rally comes as traders re-assess a strategy in which the yen has acted as a key funding currency in carry trades. Investors have also boosted short positions on the yen as the currency moved steadily lower this year amid widening divergence between the Bank of Japan’s easy policy and aggressive hiking cycles for other central banks, notably in the US and Europe.

“I don’t think we’ll see a complete unwind of the yen carry trade just yet but it had gone a long way in Q2, so this is profit taking, position adjustment,” said Brad Bechtel, a foreign-exchange strategist at Jefferies. “If volatility stays high then it will continue to unwind, but if volatility stabilizes then carry junkies will jump back in.”

Shorting Japan’s currency has been a popular trade as falling Treasuries spurred investors to sell the yen in favor of the higher-yielding dollar. The yen is one of the worst-performing Group-of-10 this year, reaching 145 per dollar last month, a level unseen since November. 

Earlier on Friday, Eisuke Sakakibara, otherwise known as “Mr. Yen” who was Japan’s vice finance minister from 1997 to 1999, said the yen may weaken through the 160 per dollar level, a thirty-year low. At this level, Sakakibara said, the Japanese authorities may be “tempted” to support the currency. 

“Investors are unwinding shorts today” amid profit-taking on the trade, said Peter Vassallo, a portfolio manager at BNP Paribas Asset Management.

--With assistance from Robert Fullem.

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