The Japanese yen breached the 145 mark against the dollar on Monday, the first time since November 2022.
On Friday, the Japanese currency briefly touched the same key psychological level.
The yen has been steadily weakening since the Bank of Japan adjusted its stance on its yield curve control policy in late July, sending 10-year Japanese government bonds to its highest levels in nine years.
In a forex snap note on Monday, HSBC said it expects the Japanese Ministry of Finance to "start pushing back in the 145-148 range." The Japanese government and the BOJ stepped in to buy the yen at 145 to the dollar in September 2022.
However, if the BOJ and the Japanese government does not intervene, HSBC says that short positions on the yen "will likely be rebuilt further." The note highlighted that these positions were cut by over 30% in July during the lead-up to the BOJ's July 28 monetary policy meeting.
The U.S. dollar has also been on an uptrend since end July, with the dollar index climbing from a low of 99.77 on July 13 to its current level of 102.99.
HSBC said there is a "new factor" supporting the U.S. dollar — namely, high longer-end U.S. yields on concerns about the U.S. budget deficit and Treasury supply.
"While this may end up being temporary, it is happening while our existing USD framework ... is not giving strong signs for a USD downtrend," the bank said.
On Tuesday, Japan will report gross domestic product numbers for the quarter that ended June. Inflation numbers for July are due out on Friday.
HSBC pointed out that "misses in the data may also embolden the bears."
GDP is expected to grow 0.8% on a quarter on quarter basis, and the core consumer price index — which strips out prices of fresh food — is forecast to come in at 3.1%, according to a Reuters poll.