Why the Hype Over Dollar-Yen at 100 Is Overdone

Tomohiro Ohsumi | Bloomberg | Getty Images

Currency markets have been on tenterhooks this week to see if the yen will finally hit the psychologically important level of 100 against the dollar. However, some analysts say the significance of such move should not be overdone.

"I think it could very well be today or this week, we are very close [to the yen hitting 100 per dollar]... But I don't think there is nearly enough significance in hitting that level as one might think," said Ilya Spivak, currency strategist at forex news site DailyFX.com.

"If dollar/yen were to close above 100 and push meaningfully higher, that would be something. But without fundamental follow-through, it could be a hit that really peters out," he added.

The yen weakened to around 99.94 against the dollar in early April after the Bank of Japan unveiled radical monetary policies. It flirted with the level again this week amid relief that G-20 nations shied away from criticizing Japan's monetary policies at a gathering last week.

(Read More: Ssshh! Why Japan Is Keeping Quiet on the Yen)

On Wednesday, the currency traded at about 99.5 to the dollar. It has weakened about 25 percent against the greenback since mid-November when Shinzo Abe, elected as Prime Minister in December, first pledged to revive the flagging Japanese economy.

Japan's economic policies received some negative attention this week, after credit ratings agency Standard & Poor's and the Organization of Economic Cooperation and Development both questioned the nation's ability to revive economic growth.

The OECD praised Japan's quantitative easing program, but urged structural reform, while S&P expressed doubts over whether the Japanese government could win its battle with deflation.

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Japanese Prime Minister Shinzo Abe

Other analysts say the 100-barrier on dollar/yen is an important psychological level for good reason.

"Yes it is just another number, but when you see it switch over to three numbers in front of the decimal point, that is a big psychological hurdle. We haven't been there for a really long time," Keagan York, head of FX strategy at Compass Global Markets told CNBC.

(Read More: Here's What Could Push Dollar-Yen Past 100 )

Another reason why a sustained move through 100 could be significant is that it could trigger renewed criticism about the level of the yen globally, analysts said.

Japan came under fire earlier this year from neighboring economies for pursuing policies that weakened its currency and gave exporters a competitive edge. And although Japan escaped directed criticism at the latest G-20 meeting, currency analysts say fears of a 'currency war' could come back if the yen breaks through the 100-barrier.

(Read More: Any G-20 Criticism Unlikely to Derail Yen's Fall)

"It is a possibility that if you unbalance the natural markets, other countries are going to catch up. Everybody is striving to keep the momentum building and keep their inflation above zero percent," he said.

"It wasn't that long ago we saw the Asian economic crisis and it is still in the forefront of (central bank) governors' minds, so the focus is going to be to keep their economies moving," York added. "So if they have got to play with fire, then they have got to play with fire."

(Read More: Currency Wars Are Dead: Analyst)