The yen has climbed by more than 1% against the dollar as traders ramp up bets for more aggressive interest rate cuts by the Federal Reserve in 2024, and on lingering speculation about the Bank of Japan’s exit from its negative interest rate policy.

The Japanese currency surged as much as 1.3% to ¥140.97 to the dollar, past the four-month high of ¥141.71 reached last week, as the Fed on Wednesday signaled a pivot to rate cuts and as investors look to the BOJ’s monetary policy meeting next week for any hints on the timing of its expected exit from the world’s last negative interest rate.

Remarks last week from BOJ Gov. Kazuo Ueda and one of his deputies had fueled speculation the central bank might end the negative rate this month. Such expectations subsided after people familiar with the matter said officials see little need to rush to scrap the policy this month.

"The trigger is a broad dollar weakness due to an unexpectedly dovish Fed, with the U.S. long-term yield falling below 4%,” said Takuya Kanda, general manager of the research department at Gaitame.Com Research Institute. "The yen draws additional support amid lingering speculation the BOJ will end the negative interest rate regime in the near future.”

A dovish slant by the European Central Bank and Bank of England later today may further highlight the contrast with bets on BOJ policy tightening, supporting yen buying, Kanda said.

Inflation in Japan has remained above the central bank’s target of 2% every month since April 2022. Still, BOJ officials have said they want to see further evidence on both inflation and growth in wages.

Meanwhile, a slush fund scandal that’s engulfing the long-ruling Liberal Democratic Party is seen as having the potential to strengthen the yen. The political faction of former leader Shinzo Abe — who championed the monetary stimulus that has underpinned yen weakness — has been at the center of the scandal, leading to the view that this would help accelerate an exit from the current monetary policy.