The Japanese yen climbed to a seven-month high against the US dollar on Tuesday as traders continued to unwind short positions and increased their expectations of a Bank of Japan interest-rate hike.
The yen strengthened to 152.89 per dollar during morning trading, moving beyond levels reached during Japan’s July currency intervention and marking its strongest level since February. It later eased slightly to around 153.32 per dollar.
The move extended the yen’s 1.2% gain on Monday during a thin trading session because of a US holiday. The Japanese currency has now strengthened by about 4.5% from around 160 yen per dollar at the beginning of last week.
Analysts said several factors are supporting the yen, including expectations of faster monetary tightening by the Bank of Japan, the possibility of Japanese investors bringing money back home, the unwinding of carry trades and political pressure from the United States.
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Khoon Goh, head of Asia research at ANZ, said the yen’s initial strengthening triggered stop-loss orders as the currency broke through key levels. He added that such momentum can reinforce itself if more short yen positions are closed.
The next major level for traders to watch is 150 yen per dollar, according to Goh.
Meanwhile, the US dollar remained subdued ahead of inflation data due later this week. The dollar index, which measures the greenback against a basket of major currencies, was slightly lower at 98.83.
The euro and British pound were largely unchanged, trading at about $1.1625 and $1.3535 respectively.
Investors are now focused on US consumer price inflation data, which will be among the final major economic indicators released before the Federal Reserve’s September 15–16 policy meeting.
Markets have also been assessing the outlook for US interest rates following stronger-than-expected US jobs data released on Friday.
Geopolitical tensions in the Gulf are adding another layer of uncertainty for markets. Iran warned on Monday that it could retaliate against any new US attacks on its assets and said energy infrastructure across the Gulf, including US oil and gas interests, could be vulnerable.
Oil prices remained close to a six-week high, with Brent crude futures trading firmly above $97 a barrel.
Elsewhere in currency markets, the New Zealand dollar gained 0.1% to $0.5882, while the Australian dollar was broadly unchanged at $0.7219.
China’s yuan also remained near a three-and-a-half-year high at around 6.71 per dollar after data showed Chinese exports grew faster in August.
