Japanese yen surged this week. Why the rally may not last

The Japanese yen surged this week against the dollar, but one investor is already cautioning that the currency's newfound strength may be short-lived.

Marc Chandler, currency strategist at Bannockburn Capital Markets, told CNBC on Friday that markets are pricing in an anticipated interest rate hike from the Bank of Japan later this month, and that the hike itself could, ironically, spark further weakness rather than strength.

Chandler said that the New Zealand dollar sold off following a Wednesday rate hike from that island nation's central bank, and that the Japanese yen could follow a similar pattern. "I think the same thing could happen on a BOJ rate hike," the University of Pittsburgh alumni said. "The market has it fully discounted, and it could be a sort of buy-the-rumor, sell-the-fact" situation.

JPY= 3M mountain USD/JPY past 3 months. To illustrate the point, the Bank of Japan has raised interest rates to 1% from 0% over the past few years and the yen has generally declined over that period, Chandler said.

Intervention speculation The appreciation in the yen this week has prompted widespread speculation of a government currency intervention, similar to the one that occurred in July, though hawkish comments from a Japanese monetary policymaker were likely also a factor.

"The overnight rise in the Yen has all the telltale signs of intervention," Brookings Institution senior fellow Robin Brooks, previously chief foreign exchange strategist at Goldman Sachs, wrote in a Thursday social media post . "If it looks like intervention, it is intervention."

The Deutsche Bank trading desk in a Thursday email noted the attention on the "yen amid speculation over possible FX intervention after a spike on Wednesday, though no confirmation from authorities." The July currency move executed by Japan alongside the U.S.

Treasury, an estimated $85 billion operation on July 30 and 31, was the "biggest currency market intervention in 15 years," analysts for Goldman Sachs wrote in an August 12 research note . After that prior intervention, the yen strengthened against the dollar by roughly 3.5% between July 29 and July 31.

It subsequently weakened, however, falling by nearly 2% between August 3 and September 1, to about 160 yen per dollar. More recently, the yen strengthened by about 1.5% between Tuesday and Thursday this week. On Monday, U.S. Treasury Secretary Scott Bessent told CNBC he thought that Japanese authorities would take action that would result in a stronger yen.

The latest appreciation in the yen got an additional boost this week from comments by BOJ board member Hajime Takata, who said Wednesday that future Japanese rate hikes should be "conducted in a nimble and data-dependent manner," according to the Wall Street Journal .

Bond market pressures likely affected the July currency move from the U.S. and Japan, Maurice Obstfeld, former chief economist at the International Monetary Fund, told CNBC on Thursday. Japan is the top foreign holder of U.S. public debt and if it sells U.S. bonds to buy yen, it could push up long-term interest rates on U.S.

Treasurys, which are already under strain due to rising energy costs and their effect on inflation, as well as growing concern over the size of U.S. fiscal deficits and the total federal debt. "The Treasury I think was eager to avoid that upward pressure," Obstfeld said.