The yen has advanced to a six-month high versus the U.S. dollar after Japan’s decision to raise its bond-yield cap last month stoked bets the nation may tighten policy even more.
The currency has appreciated by as much as 0.8% to ¥129.79 per dollar, surpassing the level of ¥130.41 set in August, and reaching the strongest level since June. Gains were exacerbated due to a lack of liquidity, with Japanese financial markets shut for New Year holidays.
"The yen’s current level is significantly undervalued, even after the recent rally,” said Rajeev De Mello, a global macro portfolio manager at GAMA Asset Management in Geneva. "I would expect an end to negative rates by April. This further removes obstacles for the yen to strengthen more.”