SINGAPORE/LONDON (Sept 7): The yen surged to a seven-month high on Monday, as traders appeared to reassess their outlook on the embattled currency, thanks to a combination of factors including bets on faster Bank of Japan (BOJ) tightening and expectations that Japanese investors may shift funds home.

The main scheduled event of the week is Friday's US inflation data, which will help shape the Federal Reserve's (Fed) view on an interest-rate hike later in the month, and in turn the direction of the dollar.

The European Central Bank also meets on Thursday, when it is widely expected to raise eurozone rates.

Until then, the focus remains on the yen. The dollar fell to as low as 154.05 against the yen, its weakest level since February, and was last down 1.1% at 154.4. It has now broken below lows reached in August after Washington and Tokyo jointly intervened to support the Japanese currency, which was then trading at 40-year lows.

Much of the yen strength from that intervention unwound fairly quickly, but new tailwinds from capital repatriation, unwinding carry trades and US political pressure are now giving short speculators cause to rethink their long-term game.

Lee Hardman, a senior currency analyst at MUFG, said the break past the 155 level seemed to have reinforced traders' bullish views on the currency.

"So far this year, when we have seen the yen strengthen following bouts of intervention, that 155 level was where dollar/yen tended to bottom out. Breaking past that level is a bullish signal and we could see further upside for the yen," he said.

Recent moves have been dramatic; the dollar traded above 160 against the yen as recently as last Tuesday.

A further factor in the mix was the potential unwinding of yen-funded carry trades, which had been causing the yen to weaken.

Eric Robertsen, the global head of research and chief strategist at Standard Chartered, said that while carry trades have been among the strongest macro performers year-to-date despite a surge in borrowing costs globally, the "recent burst" of yen strength is a "potential threat to carry outperformance".

"If the JPY (yen) were to strengthen persistently, this may signal that the increase in JPY and USD rates is starting to trigger a change in asset allocation," he said.

The dollar's slide against the yen also weighed more broadly on the US currency. The euro rose 0.15% to US$1.1630, while the pound gained a similar amount to US$1.3539.

And the dollar has an important week, with traders pricing a roughly 60% chance the Fed will hike rates this month in the wake of last Friday's forecast-beating non-farm payrolls report.

That has left this week's inflation data as crucial.

"A hot CPI (consumer price index) print would all but seal a September hike and underpin a firmer US dollar. A cooler reading would strengthen the case for a hold and leave the US dollar vulnerable to a dovish Fed repricing," said Elias Haddad, the global head of markets strategy at BBH.

"Even if a September Fed hike becomes a done deal, we doubt the US dollar will make new cyclical highs. Tightening by other major central banks limits policy divergence."

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