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The Japanese yen climbed to fresh seven-month highs against the U.S. dollar on Tuesday, as traders continued to unwind short positions amid growing expectations of a Bank of Japan interest-rate hike. The yen strengthened to as much as 153.53 per dollar in morning trading, surpassing levels reached during Japan's July intervention and hitting its strongest level since February. This added to the yen's 1.2% jump during a thin session on Monday amid a U.S. holiday, with the Japanese currency now having firmed nearly 4% from around 160 yen per dollar early last week.
Traders and analysts noted factors such as bets on a faster pace of Bank of Japan tightening, potential repatriation of funds by Japanese investors, unwinding of carry trades, and U.S. political pressure as key drivers for the yen's rally. "The drop looked more like a sharp unwind of yen shorts after the pair broke below critical supports from around 155 levels seen in August and May," said Tony Sycamore, market analyst at IG, suggesting it could open the way for further support tests. Meanwhile, the dollar index was slightly weaker at 98.83 due to yen strength, leaving the euro and sterling both slightly stronger at $1.1628 and $1.3549, respectively.
Market focus now shifts to U.S. inflation readings this week, with traders pricing a roughly 60% chance of a Federal Reserve rate hike on September 15–16 following stronger-than-expected nonfarm payrolls data. Investors also monitored geopolitical tensions in the Gulf, particularly Iran’s warning about retaliatory actions against U.S. oil and gas interests, which could impact inflation. Oil prices hovered near a six-week high, with Brent crude futures above $97 a barrel.
The New Zealand and Australian dollars showed minor gains, while China's offshore yuan remained flat near a 3.5-year high at 6.708 per dollar ahead of expected export growth data for August.
Source: CNBC
