Dollar Surges Against Yen as Fed Hike Odds Soar

The US dollar is gaining strength against the Japanese yen as investors await the Federal Reserve's (Fed) decision on interest rates. The odds of a rate hike are high, at around 90%, following hot August inflation data. As a result, US Treasury yields have risen to their highest level in three years.

A widening gap between US and Japan bond yields is drawing funds back into the dollar. Oil prices have also increased, boosting inflation expectations and yields in the US while hurting Japan's trade balance. The Bank of Japan (BoJ) meets on Friday and is expected to raise rates by 25 basis points.

The BoJ's decision has already been priced in, so it hasn't brought fresh buying for the yen. However, this also puts a floor under the currency, limiting how high the US dollar can rise against it.