Yen Surges 2.5% Against Dollar Amid Hawkish BOJ Bets

The Japanese yen has strengthened against the US dollar and is on track for its strongest week in more than a month. This gain of 2.5% comes as traders increase their bets on a hawkish Bank of Japan, with some analysts suggesting that markets are reassessing the central bank's policy path.

Masahiko Loo, senior fixed income strategist at State Street Investment Management in Tokyo, said that 'this feels less like a short squeeze and more like the market cautiously reassessing a more hawkish BOJ path.'

The yen has been boosted by expectations of an interest rate hike at the Bank of Japan's meeting on September 17-18. However, some caution is still required as Japan's top currency diplomat, Atsushi Mimura, remains alert to exchange-rate moves and has kept markets aware of the possibility of another yen-buying intervention.

The dollar index was flat at 99.01, while the euro and sterling were also unchanged. Attention now shifts back to key data releases ahead of the FOMC meeting on September 15-16, including nonfarm payrolls and CPI inflation next week.