The Japanese yen climbed to a fresh seven-month high against the US dollar on Tuesday 8 September, as traders increased their bets on further Bank of Japan interest-rate rises and reduced bearish positions in the currency.
The yen strengthened to 153.53 per dollar in morning trading, its strongest level since February and below the levels reached during Japan’s intervention in currency markets in July.
The move extended a 1.2% gain recorded on Monday, when trading was thin because of a US holiday. The yen has now risen by almost 4% from around 160 to the dollar at the start of last week.
Yen rally fuelled by rate expectations
Market participants have pointed to several factors behind the rally, including expectations that the Bank of Japan could tighten monetary policy more quickly, the prospect of Japanese investors bringing money home and the unwinding of carry trades.
US political pressure has also contributed to a change in sentiment towards the yen, which had faced sustained selling earlier in the year. Tony Sycamore, a market analyst at IG, said the latest decline in the dollar-yen pair appeared to reflect a sharp unwinding of short yen positions after the exchange rate broke below support around 155.
The dollar index, which measures the greenback against a basket of major currencies, was slightly lower at 98.83. The euro and sterling were each up 0.06%, trading at about $1.1628 and $1.3549 respectively.
Attention is now turning to US consumer price inflation figures due later this week. The data will be the last major economic release before the Federal Reserve’s policy meeting on 15 and 16 September, with traders pricing in roughly a 60% chance of a rate rise after stronger-than-expected US payrolls figures on Friday.
Investors were also monitoring tensions in the Gulf and the potential impact on inflation. Brent crude remained above $97 a barrel, close to a six-week high, amid concern that threats against energy infrastructure could push fuel prices higher.
