Yen Surges to Seven-Month High as BOJ Hikes Rate Hike Bets

The Japanese yen has surged to a seven-month high, driven by mounting conviction over an imminent Bank of Japan interest rate hike. The yen rose 0.2% in early trade to touch its strongest level since February, as currency desks dismantled bearish carry-trade bets.

The yen's surge is the primary drag on the U.S. dollar, which fell 0.2% to $98.81. Major European peers held relatively steady, with the euro near $1.1610 and the British pound around $1.3520 ahead of Thursday's European Central Bank meeting.

The yen's sustained charge is due to a fundamental re-calibration of Japan's monetary trajectory, reinforced by robust domestic growth data and explicit government backing. Japan's gross domestic product was revised upward on Tuesday to show an annualized expansion of 1.4% in the April-June quarter, beating preliminary estimates.

Institutional allocators are pointing to accelerating capital repatriation back into domestic Japanese assets, supported by narrowing interest rate differentials against Western paper. The backdrop comes as official data showed Japan's foreign securities reserves plunged by a record $87.8 billion in August to fund currency support.