Yen extends rally to new seven-month high; dollar subdued ahead of CPI

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 while the dollar was subdued ahead of CPI data this week.

The yen JPY= strengthened to as much as 152.89 per dollar in morning trading, surpassing levels reached during Japan's July intervention and hitting its strongest since February. It later pared some gains and was last at 153.32.

That 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, including bets on a faster pace of Bank of Japan tightening, and the potential for Japanese investors to repatriate their funds, unwinding carry trades and U.S. political pressure are now driving a sea change for the embattled currency and turning away the bears.