By Jiaxing Li
HONG KONG, Sept 8 (Reuters) - The Japanese yen climbed to a seven-month high against the U.S. dollar on Tuesday, as traders continued to unwind short positions amid growing bets of a Bank of Japan interest-rate hike, putting pressure on the dollar ahead of CPI data this week.
The yen strengthened to as much as 152.89 per dollar in Asia, surpassing levels reached during Japan's July intervention and hitting its strongest since February. It was last at 153.48.
The gains added to the yen's
1.2% jump during a thin session on Monday amid a U.S. holiday, with the Japanese currency now having firmed roughly 4.5% from around 160 yen per dollar early last week.
Traders and analysts said a slew of factors are now driving a sea change for the currency that is turning away bears. These include bets on a faster pace of Bank of Japan tightening, the potential for Japanese investors to repatriate their funds, the unwinding of carry trades and U.S. 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 said, adding the next key level to watch will be 150.
Japanese Finance Minister Satsuki Katayama said on Tuesday that Tokyo and Washington remain aligned in their approach to currency markets and will continue close communication to ensure orderly foreign exchange movements.
CPI DATA AWAITED
The dollar index, which measures the greenback against a basket of currencies, was a subdued at 98.84 amid yen strength.
That left the euro and sterling both largely flat, last at $1.1623 and $1.3538, respectively.
Market focus now shifts to U.S. inflation readings this week, the last set of key data releases ahead of the FOMC meeting on September 15 to 16, with traders now pricing a roughly 60% chance of a Federal Reserve rate hike this month following Friday's stronger-than-expected nonfarm payrolls report.
Federal Reserve Governor Christopher Waller said last week that inflation dynamics were key to his policy outlook and that he was leaning toward keeping rates steady if price pressures continued to moderate, but would support a hike if inflation failed to cool.
Investors were also watching geopolitical tensions in the Gulf and their implications for inflation after Iran threatened on Monday to retaliate against any new U.S. attacks on its assets, warning that energy infrastructure across the Gulf including U.S. oil and gas interests was vulnerable.
Oil prices hovered near a six-week high, with Brent crude futures firmly above $97 a barrel.
The New Zealand dollar was 0.3% weaker at $0.5860, while the Australian dollar was flat near a near multi-month highs at $0.7215 as investors continued to wager on more rate hikes at home.
Elsewhere, China's yuan was flat near a 3-1/2-year high at 6.71 per dollar, after data showed the country's exports expanded faster in August.
(Reporting by Jiaxing Li; Editing by Jacqueline Wong, Lincoln Feast and Edwina Gibbs)
