Yen headed for strongest week in a month, dollar flat ahead of payroll data

On Friday, the Japanese yen strengthened to its strongest weekly level in over a month, with traders taking bets on an anticipated Bank of Japan interest rate hike, while the U.S. dollar remained relatively flat. The yen climbed to 155.25 against the dollar in early trade, near its highest point of 155.20 set last month after a July intervention.

The yen later hovered around 155.71, maintaining a 2.5% gain this week, the strongest gain since late July following a joint intervention by Japan and the U.S. Although no official action has been taken, analysts believe the yen's surge indicates a potential for a more hawkish stance from the Bank of Japan during its meeting on September 17-18.

Masahiko Loo, a senior fixed income strategist at State Street Investment Management in Tokyo, noted that the market is cautiously reassessing the possibility of a more hawkish Bank of Japan policy. Meanwhile, Japan's top currency diplomat, Atsushi Mimura, remains vigilant regarding exchange-rate movements, maintaining contact with U.S. authorities.

The dollar index, measuring the greenback against a basket of currencies, including the yen and the euro, remained flat at 99.01. Markets are now focusing on upcoming data releases, such as nonfarm payrolls and CPI inflation, ahead of the Federal Open Market Committee meeting on September 15-16. The greenback is expected to decline by 0.7% weekly.

Federal Reserve Governor Christopher Waller hinted at maintaining steady interest rates if further inflation data shows moderate price pressures. Traders adjusted their expectations for a September rate hike to 50% after Waller's relatively dovish comments. Traders are also monitoring geopolitical tensions in the Gulf and their impact on inflation, with Brent crude futures remaining above $95.52 per barrel after U.S. strikes on Iran this week.

The New Zealand dollar rose 0.2% at $0.5892 following a central bank increase in interest rates by 25 basis points to 2.75% and signaling further tightening. The Australian dollar also gained 0.1% at $0.7206. Cryptocurrencies, including Bitcoin, saw a slight decline of 0.3% to $80,995.51.