Yen Surges to Seven-Month High Amid BOJ Hike Bets and Carry-Trade Unwind

The Japanese yen surged to a seven-month high against the US dollar on Tuesday, driven by a sharp recalibration of Japan's monetary policy trajectory and robust economic data.

The, which tracks the greenback against a basket of six major peers, was down 0.3% at 98.86. The yen has been gaining strength after hitting its strongest level since January 30, with a recent upward revision in Japan's gross domestic product growth to an annualized expansion of 1.4% in the April-June quarter.

The data further supported the case for a rate hike by the Bank of Japan (BoJ) later this month, with odds now at 75%. Japanese Finance Minister Satsuki Katayama reaffirmed Tokyo's currency stance remains aligned with Washington following the joint intervention operation in July and August.

The dollar's next move will likely be decided by key US inflation data this week. Market participants reflected expectations of a quarter-point rate hike by the Fed later this month, which currently stood at around 60%, as per the CME FedWatch tool. Higher rate environments tend to strengthen the dollar.