Key facts
- The Japanese yen reached a seven-month high against the U.S. dollar, trading at 153.53.
- Speculation of an imminent Bank of Japan interest rate hike is a key driver of the yen's appreciation.
- The yen has firmed nearly 4% from around 160 yen per dollar in the past week.
- Traders are pricing a roughly 60% chance of a Federal Reserve rate hike at its upcoming meeting.
- Geopolitical tensions in the Gulf are being monitored for their potential impact on inflation.
The Japanese yen climbed to fresh seven-month highs against the U.S. dollar on Tuesday, as traders continued to unwind short positions amid growing bets of a Bank of Japan interest-rate hike. The yen strengthened to as much as 153.53 per dollar in morning trading, surpassing levels reached during Japan's July intervention. This added to the yen's 1.2% jump during a thin session on Monday amid a U.S. holiday, with the Japanese currency now having firmed nearly 4% from around 160 yen per dollar early last week. Traders and analysts cited bets on a faster pace of Bank of Japan tightening and the potential for Japanese investors to repatriate their funds as key drivers. The dollar index was a touch weaker at 98.83 amid yen strength. Market focus now shifts to U.S. inflation readings this week, the last set of key data releases ahead of the FOMC meeting on September 15 to 16, with traders now pricing a roughly 60% chance of a Federal Reserve rate hike this month. Investors were also watching geopolitical tensions in the Gulf and their implications for inflation after Iran threatened on Monday to retaliate against any new U.S. attacks on its assets.