Yen Rises as Traders Bet on Higher Interest Rates

The Japanese yen has been rising against the U.S. dollar, and is on track for its strongest week in over a month. This comes as traders are betting that the Bank of Japan could be more hawkish than previously expected when it meets to discuss interest rates. The yen strengthened to 155.25 per dollar in morning trade before retreating to a low of 156.45, down 0.4%.

The yen's rise is largely driven by bets that the Bank of Japan will raise interest rates at its September meeting. This has led to an unwinding of estimated 16 trillion-17 trillion yen in yen shorts, which could send the dollar to a 142-146 range against the Japanese currency, according to JPMorgan.

However, analysts are cautioning that any sustained move below 155 is unlikely without significant policy surprises or more aggressive intervention by the U.S. Fed on behalf of the yen. The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was a touch stronger at 99.02.