(Bloomberg) -- The Japanese yen will continue its drop and could slide another 10% to levels not seen since the 1980s because of the Bank of Japan’s reluctance to raise interest rates significantly, according to Quentin Fitzsimmons, a global fixed-income portfolio manager for T. Rowe Price Group Inc. 

“It’s not in the interest of the Japanese to have a significantly stronger currency at this point,” he said in an interview. “Even when they raise interest rates, they probably won’t want to raise it too far because then there’ll be debt-sustainability concerns.”

The yen has weakened to levels last seen in 1990, leaving Japanese officials indicating that they are ready to take action to bolster the currency if needed. While the Bank of Japan ditched its negative interest-rate policy last month, that’s done little to support the currency because rates there still remain well below those in the US. 

That has driven the yen down more than 8% against the dollar this year to around 154 to the dollar. A big reason for that, he said, is the dollar’s recent strength as hot data in the US promises to delay rate reductions by the Federal Reserve.

The market had been watching the level of 152 as one that may prod an intervention by Japanese officials, but there has been no clear sign of such a move so far. Hedge funds have already boosted their bets against the yen to the highest since January 2018, according to the latest report from CFTC. 

Fitzsimmons said that while he expects the yen to weaken further, 170 isn’t his base-case scenario. 

“The larger the short positions, the more effective intervention that opposes that is going to be because it will literally squeeze the shorts if it’s well timed,” he said. “They’ll be looking at this very tactically and they may have to therefore be prepared to see the cross weaken more than they would like, but with the view of them achieving an elements of surprise to get it back to where they think it should be.”

The authorities in Japan seem “quite happy” with the yen around 150, he said. They don’t need a strong yen at 125 or 130, because that will bring a disinflation shock, he said.

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