Close, Yet So Far - Yen Takes Another Stab at 100

Yuriko Nakao | Bloomberg | Getty Images

The yen weakened to within striking distance of the 100-level against the U.S. dollar on Monday, yet breaking that key psychological barrier is proving to be hard.

The current fall in the yen was triggered by the Group of 20 nations' meeting in Washington over the weekend, where the participating finance ministers shied away from directly criticizing Japan from pursuing an aggressive monetary policy.

"The G-20 comments were focused on economic growth and in a way that supports what Japan is trying to do with its monetary policy, which is why dollar/yen has risen this morning," said David Greene, a senior corporate currency dealer at Western Union Business Solutions in Sydney. "But whether that is enough to push dollar/yen above 100 remains to be seen."

The G-20's latest statement was seen as a cue for further yen selling, with the currency weakening to 99.88 per dollar in early Asia trade – the second time this month that the yen has tested the key 100-level.

Analysts say that large orders in the options market to sell the yen once it breaks 100 could accelerate the yen's movement lower.

But Sean Callow, senior currency strategist at Westpac Bank in Sydney, said the options barriers may also be a reason why the 100-level appears out of reach for now.

"There appears to be a long-running defense of that [100] level and it does seem as though someone is willing to spend a lot of money to stop options barriers from being triggered at the figure," he said.

"But it does just seem to be a matter of time and there is still appetite by speculators to buy dollar/yen," Callow added. "And getting the G-20 out of the way was helpful for that."

(Read More: Yen Selling May Become an 'Avalanche:' Soros)

The G-20 has accepted that monetary easing in Japan is not aimed at weakening the yen, Bank of Japan Governor Haruhiko Kuroda was reported saying on Monday.

Deutsche Bank's currency strategist John Horner agreed the G-20 meeting could be a catalyst for a near-term move to 100 in the dollar/yen rate.

"Having got through those events without objections heard too loudly, the path does seem clearer for a move through that psychologically-key 100 level," he told CNBC's "Asia Squawk Box."

Whether or not the yen trades at 100 appeared to be of little significance to investors, who cheered the currency's latest weakness by piling into Japanese shares.

Japan's benchmark Nikkei stock index rallied just over 2 percent to its highest level in almost five years. It has surged some 28 percent so far this year to become Asia's best performing stock market on the back of yen weakness.

(Read More: Fund Managers Say Goodbye China, Hello Japan)

The currency has fallen 15 percent against the dollar this year as Japan steps up its fight to end two decades of deflation and adopts an aggressive monetary policy.

"Overall we do think dollar/yen will move higher, whether it gets there today [Monday] or not," said Deutsche Bank's Horner. "We do think it will get there sooner rather than later."

- By CNBC.Com's Dhara Ranasinghe; Follow her on Twitter: @DharaCNBC