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

The Japanese yen is poised for a 2.5% weekly increase, marking its highest gain since late July, when Japan and the US intervened to curb the currency's slide. In Hong Kong, the yen strengthened to a high of 155.25 per dollar in early trade, near the 155.20 peak reached last month following the July intervention. It later settled at 155.71, remaining flat on Friday.

Analysts suggest the yen's rise is due to market bets on the Bank of Japan's potential for a more hawkish stance during its meeting on September 17-18. This surge appears to be cautious reassessment rather than a short squeeze, according to Masahiko Loo, a senior fixed income strategist at State Street Investment Management in Tokyo.

Japan's top currency diplomat, Atsushi Mimura, emphasized his ongoing alertness to exchange-rate movements and constant communication with US authorities. Meanwhile, the dollar index, which tracks the greenback against a basket of currencies including the yen and the euro, stayed steady at 99.01. The euro and sterling held steady at US$1.1625 and US$1.3527, respectively.

Investors are now focusing on upcoming data releases before the Federal Open Market Committee (FOMC) meeting on September 15-16, particularly nonfarm payrolls later and CPI inflation next week. The greenback is expected to decline by 0.7% weekly. Federal Reserve Governor Christopher Waller hinted at a potential rate hold at the September meeting if persistent inflation moderation continues.

Traders reduced their expectations of a rate hike this month to 50% following Waller's remarks. Geopolitical tensions in the Gulf, especially the recent US strikes on Iran, are also impacting markets, with Brent crude futures remaining above US$95.52. The New Zealand dollar rose 0.2% at US$0.5892 after the central bank boosted rates by 25 basis points to 2.75%, signaling further tightening.

Australia's dollar also gained 0.1% at US$0.7206. In cryptocurrencies, Bitcoin dipped 0.3% to US$80,995.51.