Yen strengthens past 154 per dollar, hits 7-month high

The Japanese yen strengthened past 154 per dollar on Tuesday, its strongest level since February, after reversing the bearish forces that pushed the currency to a 40-year low in July. The move was driven by the unwinding of carry trades, expectations of capital repatriation and rising US political pressure for Japan to support the yen through tighter monetary policy. Markets now expect the Bank of Japan to raise interest rates this month, with an economic adviser to Prime Minister Sanae Takaichi saying the central bank is likely to hike rates in September and deliver another increase by January next year.

The remarks point to growing recognition within the Takaichi administration, which has previously favored a dovish approach, that further BOJ tightening may be needed to curb excessive yen weakness. Data also showed Japanese wages rising at their fastest pace since 1997, reinforcing expectations for a more hawkish BOJ policy stance.