Yen's Rally Pauses Amid Inflation Worries and Rising Oil Prices

The Japanese yen paused its rally on Tuesday after reaching near seven-month highs of 152.89 per dollar, surpassing levels seen during Japan's July intervention. The currency had strengthened to its strongest level since February but pulled back to trade around 154 through London and early New York hours, broadly flat on the day.

The yen has surged more than 5% this quarter, driven by factors such as bets on a faster pace of Bank of Japan tightening, potential for Japanese investors to repatriate their funds, unwinding of carry trades, and U.S. political pressure. Nomura's Dominic Bunning said the market-driven flow is possibly due to investors thinking more about the BOJ turning more hawkish at the next meeting.

Traders largely expect Japan's central bank to hike interest rates by 25 basis points to 1.25% at the September 17-18 meeting, while U.S. inflation readings this week are a key focus ahead of the Fed meeting on September 15-16. The dollar index edged nearly 0.2% higher, and oil prices hovered near a six-week high with Brent crude futures above $98 a barrel.