Yen Surges to Seven-Month High as Dollar Awaits US Inflation Data

The Japanese yen climbed to a fresh seven-month high against the U.S. dollar on Tuesday, touching 153.53 per dollar in Asian trading. This marks the strongest level for the currency since February, surpassing even the levels that prompted Japan's intervention in July.

The yen's rally has been swift, with the currency firming nearly 4% from around 160 per dollar early last week. Monday's thin, U.S.-holiday session saw a 1.2% jump, and the momentum has carried into Tuesday as traders continue to unwind short positions.

Analysts attribute the shift to a combination of factors: growing expectations of faster Bank of Japan rate hikes, potential repatriation of Japanese investments, unwinding of carry trades, and U.S. political pressure. One market analyst noted that the move looked like a sharp unwind of yen shorts after the pair broke below critical support around 155, potentially opening the way for further gains.

The dollar index slipped to 98.83, with the euro and sterling both edging up 0.06% to $1.1628 and $1.3549, respectively. The New Zealand dollar gained 0.1% to $0.5882, while the Australian dollar held steady at $0.7219.

Attention now turns to U.S. inflation data due this week, the last major release before the Federal Reserve's policy meeting on September 15-16. Markets are pricing in roughly a 60% chance of a rate hike this month, following Friday's stronger-than-expected nonfarm payrolls report.

Geopolitical tensions in the Gulf are also on investors' radar. Iran has threatened retaliation against any new U.S. attacks on its assets, warning that energy infrastructure across the region, including U.S. oil and gas interests, could be vulnerable. Oil prices hovered near a six-week high, with Brent crude futures firmly above $97 a barrel.

In China, the offshore yuan was flat near a 3-1/2-year high at 6.708 per dollar, ahead of trade data due later in the day that is expected to show faster export growth in August.