Yen's Sudden Strength Tests Dollar Ahead of Key Inflation Data

The Japanese yen has rallied to a seven-month high against the US dollar, with traders unwinding short positions and betting on a Bank of Japan interest-rate hike. The yen strengthened to 152.89 per dollar in Asia, surpassing levels reached during Japan's July intervention and hitting its strongest since February. It was last at 153.48.

Khoon Goh, head of Asia research at ANZ, said that the yen's move triggered a lot of stop losses, especially when it broke key levels. The next key level to watch will be 150, he added.

The dollar index was subdued at 98.84 amid yen strength, leaving the euro and sterling largely flat. 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.

Federal Reserve Governor Christopher Waller said last week that inflation dynamics were key to his policy outlook and that he was leaning toward keeping rates steady if price pressures continued to moderate, but would support a hike if inflation failed to cool.