Yen Surges to Seven-Month High as Bets on Bank of Japan Hike Mount
The Japanese yen has surged to a seven-month high against the US dollar, driven by growing bets of a Bank of Japan interest-rate hike and unwinding of short positions. The yen strengthened to as much as 153.53 per dollar in morning trading on Tuesday, surpassing levels reached during Japan's July intervention and hitting its strongest since February.
The currency has firmed nearly 4% from around 160 yen per dollar early last week, with traders citing a slew of factors including bets on faster Bank of Japan tightening and potential Japanese investor repatriation as key drivers. Tony Sycamore, market analyst at IG, noted that the drop looked like 'a sharp unwind of yen shorts' after the pair broke below critical supports from around 155 levels seen in August.
As a result, 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 US inflation readings this week, with traders pricing a roughly 60% chance of a Federal Reserve rate hike this month following Friday's stronger-than-expected nonfarm payrolls report.