Yen Surges to Near Seven-Month High as BOJ Rate Hike Expectations Grow

The Japanese yen surged to a near seven-month high on Tuesday, reaching as much as 152.89 per dollar, outperforming levels reached during Japan's July intervention and hitting its strongest since February. The currency pulled back to trade at 154 in London morning trade.

Traders and analysts attribute the yen's strength to growing expectations of a Bank of Japan rate hike next week, as well as bets on a faster pace of tightening by the central bank. They also point to the potential for Japanese investors to repatriate their funds, the unwinding of carry trades, and U.S. political pressure.

According to Dominic Bunning, head of G10 FX strategy at Nomura in London, 'It seems more like it's a market-driven flow, possibly investors starting to think much more about the BOJ turning more hawkish at the next meeting.' However, he notes that it will be challenging for the BOJ to hike faster than the market has priced in or to a higher terminal rate.