Yen Surges to Seven-Month Highs on BOJ Rate Hike Bets and Investor Repatriation

The Japanese yen has reached fresh seven-month highs against the US dollar on Tuesday, surpassing levels seen during Japan's July intervention and hitting its strongest since February. The yen strengthened to as much as 153.53 per dollar in morning trading, marking a nearly 4% jump from around 160 yen per dollar early last week.

Analysts point to growing bets of a Bank of Japan interest-rate hike as one factor driving the yen's resurgence, along with potential Japanese investor repatriation and US political pressure. This has led to a sharp unwind of yen shorts, according to Tony Sycamore from IG, who notes that this could open the way for a test of the next layer of support.

The dollar index was slightly weaker at 98.83 amid yen strength, while the euro and sterling were both 0.06% stronger. Market focus now shifts to US inflation readings this week, with traders pricing in a roughly 60% chance of a Federal Reserve rate hike this month following Friday's stronger-than-expected nonfarm payrolls report.