The Japanese yen extended its recent gains on Tuesday, reaching a 7-month high against the US dollar as traders continued to unwind short positions and increased bets on a Bank of Japan interest-rate hike.
The yen strengthened to 152.89 per dollar in morning trading, moving beyond levels seen during Japan’s July intervention and reaching its strongest point since February. It later eased some gains to 153.32.
The move followed a 1.2% rise on Monday during a thin trading session due to a US holiday. The yen has now gained around 4.5% from approximately 160 per dollar early last week.
Traders and analysts said several factors are supporting the currency, including expectations of faster Bank of Japan tightening, potential repatriation of funds by Japanese investors, the unwinding of carry trades and US political pressure.
“When the yen started to move stronger, I think it triggered a lot of stop losses… especially when they started to break some of those key levels,” said Khoon Goh, head of Asia research at ANZ.
“The thing about this kind of momentum moves is it can be self-reinforcing, and it really depends on whether there’s still a lot of short yen positions that are still to be stopped out,” he added, pointing to 150 as the next key level to watch.
The dollar index, which measures the US currency against a basket of currencies, was slightly lower at 98.83 amid the yen’s strength.
The euro and sterling were largely unchanged at $1.1625 and $1.3535, respectively.
Market attention is now turning to US inflation data due this week. The figures are the last major data releases before the Federal Open Market Committee meeting on September 15-16.
Traders are pricing around a 60% chance of a Federal Reserve rate hike this month following Friday’s stronger-than-expected nonfarm payrolls report.
Investors are also monitoring tensions in the Gulf and their potential impact on inflation. Iran threatened on Monday to retaliate against any new US attacks on its assets and warned that energy infrastructure across the Gulf, including US oil and gas interests, could be vulnerable.
Oil prices remained near a 6-week high, with Brent crude futures firmly above $97 a barrel.
The New Zealand dollar rose 0.1% to $0.5882, while the Australian dollar was flat at $0.7219.
China’s yuan was largely unchanged near a 3.5-year high at 6.71 per dollar after data showed Chinese exports grew faster in August.
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