Yen Hits Seven-Month High on Bank of Japan Hike Bets

The Japanese yen has reached new seven-month highs against the U.S. dollar on Tuesday, driven by growing bets of a Bank of Japan interest-rate hike and a potential for Japanese investors to repatriate their funds.

The yen strengthened to as much as 153.53 per dollar in morning trading, surpassing levels reached during Japan's July intervention and hitting its strongest since February.

Traders and analysts said a slew of factors, including bets on a faster pace of Bank of Japan tightening, are driving the yen's rally. Tony Sycamore, market analyst at IG, noted that the drop in the dollar-yen pair looked like a sharp unwind of yen shorts after breaking below critical supports.

The dollar index was weaker at 98.83 amid yen strength, leaving the euro and sterling both 0.06% stronger. Market focus now shifts to U.S. inflation readings this week, with traders pricing a roughly 60% chance of a Federal Reserve rate hike this month.