The yen looks set to continue its march higher against the embattled dollar as interest rates rise, but gains are likely to be temporary and will not threaten the economic recovery, analysts said.
The yen hit three-month highs against the US dollar last week as the US currency reeled from a host of concerns including the health of the world's largest economy and central banks' diversification of currency reserves.
The dollar has lost about 2 percent against the yen in over the past two weeks, reaching ¥115.40 on Monday last week, while the euro has gained more than three percent versus the greenback to a 20-month high.
The yen has also been partly underpinned by expectations that the Bank of Japan (BoJ) will notch up its benchmark interest rate from 0.25 percent next month, or early next year, as the economy enjoys its longest post-war expansion.
"For sure, in the short term, the yen will break past the current 115 yen level because the Bank of Japan will raise its interest rate early next year," said Takeshi Makita, senior economist at the Japan Research Institute.
The US dollar could fall below ¥110 mark when the BoJ raises rates again for just the second time in six years, to 0.50 percent, after ending the era of virtually zero interest in July, analysts predicted.
The dollar rose sharply last year as the US Federal Reserve pursued a series of back-to-back interest rate rises, tempting investors to buy dollar assets.
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