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NEW YORKLONDON, June 26 Reuters The yen dropped to its lowest against the U.S. dollar since late 1986 on Wednesday, amid a wide interest rate differential between the two economies, keeping the market alert for any sign of intervention from Japanese authorities to boost its currency.

The U.S. dollar rose to as high 160.63, its strongest level since December 1986. The greenback was last up 0.5 at 106.455 yen.

Japan39;s low interest rate regime, compared to that of the United States, has continued to hammer the yen. The 10year Japanese government bond yield was 1.03 on Wednesday, while the 10year Treasury yield was 4.304.

The market seems to be frontrunning itself with respect to BOJ Bank of Japan policy. But let39;s say the market is not doing that, said Eugene Epstein, head of structuring for North America at Moneycorp in New Jersey.

Let39;s say they39;re not pushing the BOJ. Just the fact that interest rate differentials are what they are between Japan and the U.S., that would be the natural progression anyway, he said.

Socalled carry trade strategies, where investors borrow in lowyielding currencies to invest in higheryielding ones, have become hugely popular as some countries have raised borrowing costs in recent years.

Although Japan has raised interest rates this year to a range of zero to 0.1, U.S. rates…