Asian stocks head for strong weekly gains as US rate hike bets fade

The yen JPY= was at 159.36 per U.S. dollar, hovering close to the crucial 160 level that traders believe could trigger another bout of yen buying from Tokyo, after a joint intervention with the U.S. last month failed to steady the frail currency.

Traders have since warmed to the idea that the Bank of Japan may at last start to support the yen, pricing in the prospect of a rate hike next month, although the risk now is that investors might come away from the September meeting disappointed if the BOJ is deemed not hawkish enough.

Padhraic Garvey, head of global rates and debt strategy at ING, said the yen's weakness comes from "an uber-cautious Bank of Japan and a policy rate that remains too low," noting the yen is back testing 160 levels as the underlying issues remain.

"This tension can be eased through rate hikes, and the sooner, the better," said Garvey. "While that could be construed as negative for the economy, it's also a choice. Prioritise the protection of the yen, or not?"