(Bloomberg) -- Currency traders warned Japan’s government that it will need to repeatedly act to buoy the beleaguered yen given economic forces likely merit further depreciation.

The yen surged suddenly and sharply on Monday in Asia hours, when the nation’s markets were shut for a holiday. The move prompted speculation that Japanese officials had run out of patience with its slump and acted on their threats to support it. The currency has weakened roughly 10% this year versus the greenback, the most among Group-of-10 peers, and touched a 34-year low of 160.17 per dollar just before Monday’s abrupt rally.

The problem for Japanese Prime Minister Fumio Kishida’s government, say traders and strategists, is that any intervention may need to be sustained. That’s especially the case as markets are bracing for the Federal Reserve to underscore this week that it intends to hold interest rates higher for longer, burnishing the dollar’s appeal.

“Going back to 160 again is pretty much in sight, unless the macroeconomic situation changes,” said Yusuke Miyairi, a foreign—exchange strategist at Nomura International Plc. Monday’s trading in the yen suggests “the market is not too afraid of fighting the MOF in terms of the currency,” he said, referencing the Japanese Ministry of Finance, which oversees the country’s foreign-exchange policy.

Japan’s top currency official Masato Kanda on Tuesday didn’t say whether the authorities had stepped into the market. Any excessive FX moves that are driven by speculation will have a negative impact on the economy, and he will take appropriate action to counter such movements.

Analysts at Citigroup Inc. predict the yen will grind along in a range of 155-to-160 per dollar as Fed policymakers meet Tuesday and Wednesday and investors look to some key economic data to gauge whether the US economy is softening. 

The yen traded at around 156.59 per dollar as of 9:39 a.m. in Tokyo. The currency had a brief surge after mid-day in New York that triggered debate around whether Japan had acted during US hours. 

The appreciation was smaller than what was seen in the Asia timezone and some strategists ascribed it to nervous markets in the wake of the overnight intervention chatter.

What Bloomberg’s Strategists Say:

“While official confirmation may not be forthcoming for some time, for now it looks like we can chalk this one up as a success for the intervention scorecard.”

— Cameron Crise, macro strategist

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The yen is on pace to slump for a fourth straight month. Traders saw a fresh reason to sell after the Bank of Japan last week kept the range for its benchmark interest rate between 0% and 0.1%, as expected, and refrained from signaling a reduction of its bond purchases. In the US, meanwhile, the Fed is expected to hold rates some five percentage points above that level until the fourth quarter. 

The yen “has been following the rate differential between the US and Japan particularly closely this year,” said Leah Traub, a portfolio manager at Lord Abbett & Co. 

While Monday’s move looked like authorities stepped in,“any impact from such ad-hoc intervention will be very short-lived,” she said via email. “If the BOJ and MOF want to prevent further depreciation they will have to alter their guidance to reflect a reduction in bond purchases and/or an increase in the path of interest rates.”

Their task may only get tougher in the days ahead, given the US economic backdrop. In the analysis of Bloomberg Economics, there’s a risk of more hawkish signals to come from the Fed as soon as this week.

Read more: 60,000 Headlines Show Powell’s Hawkish Pivot Has Just Begun

Economic data this week will also prove critical. The focus will be on US April jobs figures set for release Friday. Evidence of weakening could rekindle expectations that the Fed will ease policy earlier than markets currently anticipate. The expectation is that the report will show job growth slowed this month, while remaining at a robust level.

“A soft NFP could save the MOF,” said Nomura’s Miyairi.

It all points to a potentially steep uphill battle for Japanese policymakers looking to prop up their currency.

“The biggest single mistake in intervention that’s not backed by policy is drawing a line in the sand,” said Tom Fitzpatrick, managing director of global markets insights at R.J. O’Brien & Associates.

It could present an opportunity, he said, for Japanese portfolio managers to add US fixed-income assets on an unhedged basis, if they assume the dollar will remain strong or appreciate further. 

“If you’re a Japanese investor, this is a gift,” he said.  

--With assistance from Masaki Kondo.

(Adds Kanda’s comment in fifth paragraph and updates yen exchange rate in seventh paragraph.)

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