(Bloomberg) -- Easing financial stress globally has boosted the allure of yen-funded carry trades, adding to depreciation risks for the currency that would raise the chances of intervention from Japanese authorities.

Bank of America’s Global Financial Stress Indicator dropped to a four-year low last week, signaling buoyant investor appetite for higher-yielding riskier assets. The yen, the currency of the world’s only remaining economy with negative interest rates, posted its eighth weekly decline against the dollar on Friday. That was the longest losing streak since October 2022.

Prospects that the Bank of Japan will tighten policy more slowly than traders previously expected are limiting the room for a rebound in the nation’s currency especially against the dollar as US yields are among the highest in Group-of-10 markets. Data from major economies have been surprising to the upside in the past few weeks, prompting policymakers in the US and Europe to caution against becoming too sure that interest rate cuts are imminent.

It’s possible that “bets on increased yen-funded carry trades are building amid euphoria in global markets,” Makoto Noji, chief currency and foreign bond strategists at SMBC Nikko Securities Inc. in Tokyo, wrote in a research note. “Even if the BOJ raises interest rates a little, the real policy rate will remain negative for longer.”

The BOJ’s short-term policy rate is more than 2 percentage points lower than Japan’s core-inflation rate.

The currency has already weakened beyond levels that saw Japan’s Ministry of Finance step into the market in September 2022. Strategists in Tokyo expect the authorities to go on high alert should the yen depreciate to about 152 per dollar. It was around 150 on Monday.

Markets “can expect a step-up in verbal warnings on speculative yen moves,” said Alex Loo, a foreign-exchange and macro strategist at TD Securities in Singapore. “Dollar-yen may take its cue from the US bond market which may push the pair past its high last year.”

Speculators are betting on a further decline in Japan’s currency. Net yen short positions held by leveraged funds and asset managers combined climbed to the highest level since mid-2022 last week, according to data from the Commodity Futures Trading Commission.

“I see scope for dollar-yen to lift further in the near term given the still-resilient US economy,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

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