(Bloomberg) -- The yen’s rapid decline in the past week toward 155 against the dollar has strategists warning that further weakness may trigger verbal intervention from authorities and add pressure on the Bank of Japan to hike interest rates.
The yen has tumbled about 2.8% against the dollar so far this month, one of the worst performance among major currencies. Hitting 155 would take it to the weakest level since Nov. 22. Japan’s currency was little changed at 154.02 as of 4:11 p.m. in Tokyo and any decline from here would put it on course for a seven-day slump, the longest rout since June.
“I think 155 is a major milestone,” said Akira Moroga, chief market strategist at Aozora Bank Ltd. “I expect that the stance of the Japanese authorities will change at 155, and the possibility of the BOJ raising interest rates will also increase.”
There is a 19% chance the central bank will hike this week, according to overnight index swaps. The probability of a December rate increase has fallen from about 60% at the start of this month, after media reports doused speculation of a hike.
“The unabated direction and speed of travel in the yen over the week is not a source of comfort for the BOJ or the MOF,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd., referring to the central bank and the Ministry of Finance. “There is a high probability of verbal intervention if the dollar-yen reaches 155 and beyond.” He said the yen reaching 157 or 158 may increase pressure on the BOJ.
The yen’s direction will also depend on the Federal Reserve’s policy meeting just several hours before the BOJ’s decision. The currency may face strong pressure to weaken before and after the meetings, pushing the yen past 155, wrote Yujiro Goto, head of foreign-exchange strategy at Nomura Securities Co., in a note.
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