As the yen hovers at a key level, investors are betting heavily that the currency will continue to fall, reaching the largest level in 17 years, which will increase the risk of Japanese authorities intervening in the currency market.

Net short positions in the yen held by leveraged funds and asset managers increased to 148,388 contracts in the week ended April 2, the highest level since January 2007, according to the latest data from the U.S. Commodity Futures Trading Commission (CFTC).

Despite repeated warnings from Japanese officials about how far the yen could fall, short bets are still increasing, highlighting investors' belief that the yen has room to fall further given the widening interest rate gap between Japan and the United States.

"I think economic indicators and even statements from Bank of Japan officials are not enough to turn investors into yen buyers, and there may be more yen selling, but this may conflict with the timing of Japanese monetary authorities' intervention in the currency market," said Marito Ueda, head of market research at SBI Liquidity Market.

The troubled yen is close to a 34-year low, suggesting that the Bank of Japan's first rate hike in 17 years has not changed the global market structure dominated by the Federal Reserve. In Asian trading on Monday, the dollar traded around 151.7 yen.

The yen's weakness has prompted repeated warnings from officials who have pledged to take action to prevent excessive exchange rate volatility. As the yen remains one of the world's most traded currencies, this risk could "tear" the foreign exchange market.

U.S. CPI inflation data, due on Wednesday, could be the "trigger" for sharp yen fluctuations, and any signs that inflation will rebound strongly would support market bets that the Fed will not rush to cut interest rates.

Economists predict that the U.S. CPI data for March will show some easing of inflationary pressures. Economists surveyed by foreign media said that both the headline and core CPI indexes are expected to rise 0.3% month-on-month in March, down from 0.4% in February. However, the year-on-year growth rate of the core CPI will still be as high as 3.7%, far above the Fed's "comfort zone", especially considering the recent rise in oil prices.

Koji Fukaya, a researcher at Tokyo Market Risk Consulting, wrote in a research report, "As the market expects that the narrowing of the U.S.-Japan interest rate differential will be delayed, speculative yen selling has increased, pushing the dollar-yen exchange rate to a multi-decade high.