The recent rally is not sustainable and the yen faces further downside breakout

　　The yen's recent rally may be short-lived, with at least three factors likely to cause the currency to fall further and potentially trigger intervention by the authorities.

　　The yen has fallen against major currencies in the final days of every month since February, and preliminary data suggest this month is expected to be no different. The recent strong performance of Japan's (JPN) equity and bond markets has asset managers scrambling to adjust portfolios to meet strict allocations across asset classes at the end of the month. Traders in New York and Europe said that rebalancing contributed to the month-end sell-off.

　　Meanwhile, the global interest rate outlook - the Bank of Japan (BoJ) indicated that it will stick to its current monetary easing policy while the United States (USA) seeks further rate hikes. Moreover, the soaring cost of hedging means the yen sell-off is unlikely to stop.

　　Wunsch, global head of currency strategy at Brown Brothers Harriman (BBH), said: "With the Bank of Japan maintaining its dovish stance, we expect USD/JPY to eventually test 150. Fundamentals continue to move in favor of the dollar. Markets may be starting to get nervous about FX intervention, but in reality it won't do much as long as the boj remains dovish."